How payment systems scammers work and how to avoid them

The problem of fraud in high-risk business has always existed and is particularly acute among payment and financial counterparties. Trusting your finances to an unknown company is not easy thing, but it is almost always necessary. Just as it is necessary to keep personal savings in a bank or brokerage account. There will always be a need for a financial intermediary of a certain type. Otherwise, money will simply lie under your pillow, not working for you and your business at all.

But this does not mean that you should expect the worse and accept the possibility of losing your funds. In business, as in personal finance, you have to learn about potential difficulties and how to avoid them. Today, we will discuss this in more detail.

Why fraudsters exist

A burning question: "Why do fraudsters still exist among payment systems in 2024, and how do they manage to make good money?" Indeed, the development of technology and access to industry knowledge today is higher than ever, but standard fraud schemes are still successfully used by unscrupulous businessmen.

The answer to this question is quite simple — they exist because there are potential victims. Unfortunately, many businesses still do not consider it important to pay attention to the choice of financial partners and payment systems; they prefer to do everything in a hurry and look for the cheapest offer, behind which fraud often hides. Of course, even a professional can be deceived, but the chances of this are negligible (if they are truly professional).

In the high-risk business, such “processing partners” are encountered particularly often and this is because the industry volumes. It turns over huge amounts of money annually, and this attracts various fraudsters who pretend to be payment systems without actually being one. Especially on hard-to-access markets, where many real PSPs operate without financial license, it is easy to deceive a trusting merchant by posing as a reputable provider.

For example, India is one of the countries where fraud is most commonly encountered, and merchants may not receive their funds at all from this processing. Similarly, Africa, led by Kenya is also quite dangerous market for unexperienced merchants. There are also many such cases in the European space, so frankly speaking, it can happen anywhere.

How they work: main fraud schemes

Quite a few types and subtypes of fraudulent schemes are in use, but there are clear favourites among that you are more likely to encounter. Since they are easier and faster to implement than more complex schemes.

Among them:

• Non-payment of funds to the merchant (thus stealing settlements): This is the main method of “work” for dishonest and even fake payment systems. Everything starts friendly and actively: such payment systems are always eager to work with the merchant as quickly as possible and offer very favorable terms that are hard to believe. For example, with an average cost of 7% for incoming payments, they may offer you 5% or even 3%. And most often, they do not have a license for offering processing services in the jurisdiction. The scheme is quite simple: receive as many funds as possible from incoming payments and do not pay them to the merchant under any condition. Various reasons to cover that can be used: difficulties on the partner's side, issues with the bank, and promises to pay everything down to the last penny. In the hope of getting a little more processing. When their patience runs out, such companies simply disappear from your horizon, delete their accounts on social networks and their website, and never respond again. Why can the price be a red flag here? Because it is precisely this factor that most strongly influences merchant's decision to cooperate with PSP, and fraudsters understand this very well. For them, the margin and earnings on processing services are not important, so they can offer it to you for free, as they do not intend to pay out anything at all. At the same time, a stable, honest payment system cannot fall below the market price of its services, because then it simply cannot make money.
• Non-existent fines: This method became popular much later than the one above and is likely just an evolution of same scammers. Since gaining the trust of merchants is becoming increasingly difficult and creating a media image of a reliable partner is also not easy in our time. To do this, you need to invest time and budget, and after the first case of fraud, such a payment system has to disappear. Although a number of such companies existed for several years, they managed to do so under different names. To save such "payment providers," they decided to use a less profitable but long-term fraud scheme and still pay funds in the form of a settlement. But they charge not only a fee but also a series of fines, which only exists for them. And Visa and Mastercard, as well as acquiring bank, often have not heard of this kind of fines. Since merchants are usually in the gray zone, this scheme works perfectly. The merchant will never complain because there is simply nowhere to go in this case.
   
• Chargebacks, both real and not. To support the previous method of fraud, in addition to fines, non-existent chargebacks for old payments may also appear. In this regard, fees that exceed the real fees of Visa/Mastercard X2 or even X10 may also be charged from the merchant. In addition to the above, other schemes may be used to defraud merchants, but today we will focus on the most popular ones.

How to protect your business from scammers

Operating in high-risk, you have to understand that there are many risks for all participants. That’s why it’s high-risk actually. Nevertheless, the risk of falling victim to dishonest counterparties should not be among them, and despite the industry nature, honesty of cooperation is always a priority. To protect yourself from such cases, be informed. For this, you need professionals who know exactly which fines can occur in payment processing and which are more likely to be made up.

Visa and Mastercard payment systems can indeed impose fines and even disconnect merchants for violating their rules; and yes, chargebacks can be the cause of these events. But at the same time, there are limit amounts for such fines, which are known in advance or can be verified in trusted sources. Any terms of work are indicated in the contract, and these contracts are very important to study and sign.

Speaking of fraudsters who choose not to pay out funds to merchants, you really need to rely on good networking in the industry and look for verified reviews about payment providers. If such reviews cannot be found, and the offer seems good, you can always test it on small volumes and continue on the same pace on permanent basis. Over a long period, reviews about such a partner may appear on the market, or you may notice inconsistencies yourself. Often, payment systems aimed at fraud do not withstand long-term cooperation, as their structure is not designed for this. You may notice a lack of support, accounting errors, technical problems, and difficulties with withdrawing funds.

In addition, we recommend keeping your accounts in order and checking the amounts received as settlements, as well as monitoring the fees you pay. Sometimes additional deductions may be discovered, which are not noticeable at first glance. Control over cooperation is your main tool to be protected.

And besides this, you can always contact us for selection of suitable payment systems for your business. We connect only proven partners with whom we have successful experience and are ready to recommend to our clients. If necessary, we can also conduct a check of your potential payment providers and find existing reviews. Text to us for details and read Mono Talks for more.