High-risk merchants are defined as businesses that exhibit the highest risk of fraud, identity theft, and other financial crimes. Such businesses tend to have a high risk of fraudulent transactions, excessive sales volume, and other red flags that indicate higher fraud rates.
Such businesses may be identified by different factors such as an excessive number or type of credit or debit card payments, a high volume of B2B transactions with no direct customer access to the business’s website or payment processing mechanisms, or other indicators of a higher risk. Reducing your high-risk merchant profile can help protect your business from fraudsters and reduce unnecessary spending on third parties. Let’s take a look at what this means for you and how you can identify and lower your high-risk profile in order to keep hackers out and customers in your business instead of spending money elsewhere.
What Is High Risk Merchant?
High-risk merchant is defined as a business with the highest risk of fraud, identity theft, and other financial crimes. This is typically seen in high-risk merchants who exhibit particular indicators such as an excessive number or type of credit or debit card payments, a high volume of B2B transactions with no direct customer access to the business’s website or payment processing mechanisms, or other indicators of a higher risk. In short, this means that your business has a higher chance of being targeted by hackers.
Reducing your high-risk merchant profile can help protect your business from fraudsters and reduce unnecessary spending on third parties. Let’s take a look at what this means for you and how you can identify and lower your high-risk profile in order to keep hackers out and customers in your business instead of spending money elsewhere.
Why is High-Risk Merchant Protection Important?
The cost of fraud losses in a company is high and can cause significant strain on your business. The costs associated with these losses can range from the loss of customers to the need for increased security, third party services, and increased spending on credit card processing companies or other providers of payment solutions. In order to reduce this risk and increase the chance that your business will profit rather than lose money, you must protect yourself with fraud prevention software and a high-risk merchant profile.
Many companies identify themselves as high-risk merchants by using data points such as credit cards, which are often used by fraudsters to purchase products or make transactions without being detected. If you are using methods such as credit card payments, it’s important to use techniques like encryption to help prevent theft or loss of information during the transactions. Additionally, it’s also important to minimize how many people have access to these methods–many businesses have employees who have access to sensitive personal information that would be potential targets for hackers in high-risk merchant profiles.
Identifying and reducing your high-risk merchant profile
The first step in identifying high-risk merchant is to compile a list of your business’s high-risk vendors. These vendors may include suppliers, those that provide credit and debit card processing, third-party payment processors, or even employees. High-risk merchants should also be aware of the services these vendors offer and the fees associated with them.
High-risk merchants should examine their supply chain for any potential vulnerabilities that could result in fraudulent transactions. By carefully examining your supply chain and vendor relationships, you can identify what risks are associated with each vendor and reduce your risk profile by decreasing dependency on high-risk vendors.
How to Find and Reduce Your High-Risk Merchant Profile
There are many ways to reduce your high-risk merchant profile. These include:
1. Using an online payment processor that has an industry-leading fraud rate, like AuthorizeNet
2. Utilizing a high-risk merchant solution that ensures all payments are processed through your business, like Verisign
3. Implementing additional account monitoring and risk management tools that help you identify fraudulent transactions or other risks in real time, like Fraudwatch International
4. Managing your own credit card processing and using a different payment processor for B2B transactions
5. Utilizing a dedicated fraud prevention team with the ability to review and address any suspicious patterns in your business’s behavior
Steps to Take After Reducing Your Profile
After identifying the high-risk merchant profile, you can take steps to reduce your profile. One of the first steps is to consider who could be a risk for your business. For example, if you are in a B2B industry, consider whether or not any of your vendors have high-risk profiles and are likely to engage in fraudulent activities. High-risk merchants must also be taken seriously and should never be overlooked or underestimated.
Next, take a look at your payment processing options and decide which ones best suit your business. If you use credit card payments, make sure that these transactions are processed through an authorized processor. If you use check payments, ensure that all checks are drawn on legitimate bank accounts with a valid routing number. Another important step is taking advantage of risk mitigation tools like fraud monitoring software and advanced authentication procedures that can help reduce liability for cybercrime activities by supporting prevention and detection efforts across multiple areas of risk management including fraud prevention and customer identification methods like multi-factor authentication (MFA).
High-risk merchant protection, or hrm, is one of the most important things you can do in order to protect your business. Once your company has identified high-risk merchants, it is important to take the appropriate steps to reduce their profile.
What factors indicate a high risk of fraud for a business?
The likelihood that a business will experience a fraud incident and its severity will depend on a number of factors, including the type of business, the industry in which it operates, and the control measures (such as fraud monitoring and prevention systems) in place. Businesses can take steps to reduce their risk of fraud, such as implementing strong business processes and controls, employing skilled personnel, and adhering to industry best practices.
Understanding high-risk merchant status is an important first step in protecting your business from fraud. High-risk merchant statuses are categorized by industry in the National Cyber Security Alliance (NCSA) National Risk Score® database. Each NCSA score is designed to help organizations prioritize control efforts and assess their progress toward optimal security. The highest possible score is 6; the database currently lists 48 high-risk statuses. The score assigned to a given business depends on both its overall risk profile and its specific industry or sector. For example, businesses that process large amounts of credit card payments through the internet could be considered high-risk for processing credit card payments due to their sector (financial services). On the other hand, businesses that do not use secure email communications such as virtual private networks (VPNs) could be considered low-risk for processing credit card payments due to their sector (retail).
How can you reduce the risk of fraud for a high-risk business?
There are several things you can do to reduce the risk of fraud for a high-risk business. One thing you can do is to employ fraud prevention tools and processes. Fraud prevention tools and processes can help detect and prevent fraud before it occurs, while fraud detection tools and processes can help respond to incidents once they are detected.
Fraud prevention tools include address verification services (AVS), data validation services (DVS), automated detection and alerting services (ADAS), electronic fraud resources (EFRs), and other services that verify a merchant’s physical or online presence.
Fraud detection tools include dynamic authentication verification systems (DavVis), dynamic gatekeeping systems (GateKeepers), batch authentication checks (Balancesheet Checks), automatic PIN generation systems (Auto PINs), order confirmation wait time monitoring systems, authenticated buyer toolkits, order tracking systems, and other services that monitor a merchant’s transactions for suspicious activity.
Other things you can do to reduce the risk of fraud for a high-risk business include following fraud prevention best practices, training employees on fraud prevention tips, training employees on fraud detection tips, setting up strong customer relationship management (CRM) practices that detect fraudulent behaviors in the first place, educating customers on how to avoid fraudulent schemes and scams, and other measures.
How can you identify a high-risk business?
To identify high-risk businesses, review your existing customer, account, and transaction data. Look for high-risk merchant categories that are popular with your customers. Compare those categories to industry statistics on fraud rates and other risk metrics.
Once you have identified high-risk merchant categories, segment those merchants into clusters. Within each cluster, review individual merchants to see if any of them fit the pattern of higher risk.
If you spot a high-risk merchant, discuss that merchant with your fraud team and compliance teams. Use that information to take further measures to reduce the risk of fraudulent transactions in your high-risk merchant category.