This week, we complete our series on high-risk trends with a look at types of merchants that could carry reputational risk for payment facilitators.
David Khalaf, LegitScript
In an era where corporate missteps are amplified by social media and a nonstop news cycle, payment facilitators can easily find themselves under attack for processing payments for merchants offering controversial products or services. Although these merchants may not conduct business that is strictly illegal, the products or services they offer may prompt public outcry and cause reputational harm to payment facilitators that onboard them.
Reputational risk is subjective, and some payment facilitators may have more appetite for controversial merchants than others. Below are some of the most increasingly pervasive merchants that pose a reputational risk to payment facilitators.
Hate/harm content encompasses merchants whose primary purpose is to advocate for, or to promote products or services that advocate for hatred, hostility, or violence toward members of a race, ethnicity, nation, religion, gender, gender identity, sexual orientation, or any other designated sector of society. With increased momentum behind the alt-right movement over the past few years, there has been an increase in hate groups and other extremist organizations that frequently operate and organize through the internet. Many of these merchants accept direct donations or sell merchandise that helps to fund their operations. Furthermore, these merchants present elevated risks for money laundering and transaction laundering. These merchants are not always easy to spot; payment facilitators should be versed in the coded language, memes, and symbols insiders reference to promote their ideology.
Although most payment facilitators do not onboard weapons merchant because of card brand rules, ghost guns provide a loophole for merchants to sell potentially dangerous build-it-yourself gun kits that do not technically qualify as weapons. Ghost guns include a mostly — but not entirely — completed receiver, which is the part of a firearm that provides housing for internal components. With just a few extra parts and some drilling, these “80% receivers” become fully functional, resulting in an unregistered, unlicensed firearm — often an AR-15 rifle. Ghost guns have been used in numerous mass shootings in the US. The FBI noticed a surge in interest in ghost guns after the 2012 Sandy Hook Elementary School shooting and the subsequent talk of stricter gun control laws it prompted. Although there is no hard data on the number of ghost gun merchants, interest in these weapons will likely continue to rise as long as they remain unregulated. Payment facilitators should scrutinize merchants selling gun parts, gun accessories, or any other weapons; the terms “ghost gun,” “80% receivers,” or language referring to do-it-yourself gun kits should be a red flag.
Hidden Illicit Massage
In 2018, the government seizure of backpage.com — a website notorious for enabling prostitution and human trafficking — caused an influx of illicit massage merchants, who pose as massage professionals but are actually using their businesses as a front to provide sexual services. Overtly illicit massage websites are typically easy to spot because of their suggestive photos or language; however, many illicit massage merchants are now attempting to pose as legitimate massage businesses to maintain a merchant account and process payment for sexual services. These services typically violate payment facilitator terms and conditions, and in many cases also violate local laws. Furthermore, illicit massage parlors are associated with alarming rates of human trafficking, second only to escort services. Payment facilitators should watch out for massage merchant websites that post suspiciously late hours of operations, include physical descriptions of staff, or appear on third-party review websites popular with sexual-massage seekers.
Psychic or Occult
Psychic merchants typically promisesupernatural insight into the unknown, including Tarot readings, communication with the dead, and other forms of divination.Occult merchants offer products or services that make claims related to witchcraft or the metaphysical.These activities qualify as high risk because they are prone to fraud and deceptive practices. If a merchant is offering unverifiable services, there is a higher likelihood they may be preying on vulnerable, lonely, or gullible consumers. As such, these services present a high chargeback risk from dissatisfied customers and reputational risk for payment facilitators. The FTC has taken action against psychic services, most notably against famed telephone psychic Miss Cleo in 2002. With advancements in internet technology, merchants offering psychic services are finding new ways to communicate with customers, such as online chat or through social media. A recent trend is for psychics to pose as life coaches to evade a payment facilitator’s terms and conditions. Although these merchants’ true services can be difficult to prove, some red flags include exorbitant hourly rates, websites with mystical or New Age designs, and language offering promises about divining the future or the unknown.