Is the Micro-merchant a new Threat?

Safeguarding from micro-merchants’ fraud

Making a payment to a plumber, window-cleaner or nanny – otherwise known as “micro-merchants” – couldn’t be easier or more convenient, thanks to innovative companies such as Square, Spindle and iZettle which have pioneered the dongle-based payment for mobile Retail Payments. Their card readers attach to smartphones and enable on the spot payments when traditional card terminals are not available. In Finextra alone, the news about such latest deployments across the US, Europe and so on, come in daily.

Unfortunately, with any payment method come new fraud vectors. Cards in the wrong hands pose a real danger, so there are processes in place to mitigate the risk. What processes have we got in place for micro-merchants? Will existing merchant authentication offerings work with the mobile world?

The biggest problem I foresee is weak enrolment and activation. For micro-merchants, enrolment and activation are two critical elements in detecting repeat fraudsters.

What if the micro merchant is not even that, but just a collector of stolen cards. No need to process through a merchant any more, he/she is the merchant! Take the money and run is now swipe the cards and disappear.

Fraud prevention has become a matter of survivability for many merchants. However, with the emergence of the micro-merchant, where a smart-phone and card-reader dongle are all that’s required to set up shop and process card payments, protection from merchant fraud, driven by the relative ease of being able to process cards, is becoming an imperative in the protection of acquirers.

While prevention of breaches is important, the industry is concerned about the friction factor, so it is imperative that institutions employ a layered approach of strong authentication combining visible and invisible security checks, to protect against rogue merchants in the growing area of micro-merchants. This ensures that a complex security model can be implemented, with low/no friction resulting in high ease-of-use for the genuine merchant, and engendering confidence and trust.