With consumers in a spending mood after a long and difficult election season, this year's holiday buying crush is likely to be one of the best in decades, experts say. Already, Black Friday and Cyber Monday purchases, both online and off, are setting records among some retailers, and there are still plenty of shopping days before Christmas.

Consumers are indeed getting swept up in the spirit of the shopping season – as are criminals, who see great opportunities for themselves to push illicit goods and services via online fraud known as transaction laundering.

The only way banks and payment processors can stop this – and protect themselves and their reputations – is by employing advanced cyber intelligence techniques that can examine the patterns of activity of the e-commerce merchants.

Image: Bloomberg News
Cyber Monday's record volume has cleared out fulfillment centers. It's also drawing attention to transaction laundering.
Image: Bloomberg News

In a TL scam, merchants pushing drugs, unlicensed firearms, child pornography, or other illicit or illegal materials take advantage of e-commerce to enable customers to more easily buy their wares. The holiday season means an increased volume of sales, but transaction launderers can wash their dishonest activity all year round.

For example, a merchant could set up a storefront on an ecommerce site and offer flowers. But along with the bouquets and corsages one can order, the site may also be used to process payments from other sites owned by the scammers but not registered with the bank or payment processor that has authorized the sale of goods and services online. Here’s how it works; the online florist’s checkout page may list, say chrysanthemums, which cost the same amount of money as the drug they are selling on the illegal site. The merchant processes the payment for the drug via the florist’s site; the customers get what they really ordered, and the merchant collects the money. Everyone is happy except for the bank or payment processor who is left holding legal responsibility for facilitating criminal activity.

The florist merchant is just as guilty as its drug merchant partner; but if s/he has to close down his/her website, it’s a front website to begin with, unlike a large/legitimate business with a reputation to protect like the bank or payment processor. Detecting the florist’s activities is nearly impossible; not all banks or payment processors have the technology to detect such a situation. Violations of a bank or payment processor’s rules, of course, will get a merchant booted ­ but that can only happen when administrators are aware of the violations. And that’s the point; transaction launderers are off the radar, and their businesses appear to be legitimate, even though they’re not. And, even if the banks or payment processors were aware of the possibility of such scams, the busy rush of the holiday buying season would obviate any possibility of detecting and eliminating this behavior – all the more so in a record-setting shopping season.

The only way banks and payment processors can stop this – and protect themselves and their reputations – is by employing advanced cyber intelligence techniques that can examine the patterns of activity of the e-commerce merchants.

Banks and payment processors must develop a reliable automated technology that provides a broader intelligence picture about each merchant. Only a deep understanding of the merchant’s full online relationships and activities, which is often intentionally blurred by the illicit merchant, can enable marketplaces to assess the risk associated with a specific merchant. Pure manual audit and review practices simply are not up to the task; banks and payment processors need to harness new automation tools that allow them to benefit from new technological capabilities of data collection qualification and analysis to complement the manual effort in order to allow them to scale efficiently. Such systems can track down TL fraud – and perhaps save banks and payment processors from ruin, allowing them to continue to set records in future shopping seasons.