Photo by Don Hankins

Beware Visa’s warnings

Visa Inc. last week sent a fraud alert to banks and payment processors warning them to look out for a “large batch settlement fraud scheme” involving a merchant account in East Europe. That alert is focusing renewed attention on a longstanding need for banks to tighten up the standards for authorizing merchants who accept credit and debit card payments.

Batch settlement fraud schemes – What are they?

Batch settlements refer to the common practice where merchants store all authorized payment card transactions that occur during a day and then send them in a batch for settlement to their acquiring bank at the close of business. An “acquiring” bank, in payment industry parlance, is the financial institution that basically vets and clears a merchant to accept payment card transactions.

In its alert, Visa said it had received reliable information from a “third-party entity” that a criminal group planned to submit a large batch settlement through a merchant account approved by a bank in Eastern Europe. “The criminals claimed to have access to account numbers and the ability to submit a large batch settlement upload to occur over a weekend,” Visa warned.

The company said it had no details about who exactly was involved or when the fraudulent activity might occur. The alert noted that the people behind the scheme were likely a “consortium of online merchants that have been trying to secure processing arrangements after being shut down at several acquirers across many geographies.”

Viable solutions according to Visa

In an e-mailed comment, a Visa spokesman said that card issuers and acquiring banks routinely monitor for unusual batch settlements. Even so, it issued the alert as a reminder to “critical stakeholders so they can take cautionary or mitigating steps” against fraud.

The situation is largely a result of the relatively loose manner in which merchants are approved to accept payment card transactions. Credit card companies and acquiring banks need to tighten up their accreditation process and how they onboard new merchants.

There are also too many third parties and Independent Sales Organizations (ISO) acting on behalf of banks to approve merchant accounts. The standards for approval used by such organizations have allowed too many illegitimate merchants to establish accounts and access to the payment systems.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.