Alternative payment methods (APMs) Risks

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Alternative payment methods (APMs) Risks

With the “perceived cost of accepting cards” alternative payment choices have appear to fill those desires to replace.  You may think you haven’t heard of them, but I’m sure you actually have, let’s review a few.  There  are eight different types, which include peer-to-peer (P2P) payments, money service businesses (MSBs), eWallets, mobile payments, prepaid cards, vouchers, bank debits and credits or linked bank accounts and cryptocurrencies (BitCoin).

Cybercriminals (hackers) seek unauthorized access to data Payment hustlers seek unauthorized access to payment methods.

We are not going to go in to details about what each of the types are, but we are going to explore the three most common ways a merchant is exposed to risks when taking non-traditional payments.  It’s no surprise that as credit cards have increased in security, the payment hustlers have been hard at work finding other payment method avenues to fraud.  EMV and those merchants that have adopted it have seen a large decrease in fraud activity.  Simply put – it’s harder to use traditional payment methods of credit cards then it is APMs.

“Because fraudsters are finding it harder to launder proceeds through credit card networks, they are looking for less monitored payment types — they are exploiting loopholes and looking for weaknesses.”  APMs are extremely vulnerable because of their tendency to unwittingly enable crime and fraud.

Mobile wallet transactions are expected to grow to $1.35 trillion in 2016.   Mastercard says, digital wallets comprise 75 percent of conversations about new payment methods, somewhere in the neighborhood of 2 million mentions on social media.  “When people talk about new ways to pay, digital wallets dominate the conversation,” he noted, underscoring the increasing popularity and usage of APMs, such as digital wallets and P2P payments.

P2P payments, will be used by nearly 100 million adults in the U.S. this year, which is about a 25 percent increase over last year and equates to about 38 percent of the U.S. adult population.

There’s no doubt that these types of APMs are not going anywhere anytime soon.

Three Common Fraud Themes

Payment hustling, sequential digital wallets and local law arbitrage.

Example 1) a merchant was engaging in counterfeit pharmaceuticals, the account was closed; but  as in many cases, (25 percent of merchants terminated for misconduct will later restart the very same prohibited services).  The site was relaunched using a popular P2P payment method and “announced” it no longer accepted credit cards and incentivized customers to use the APM for transactions.  That’s the payment hustle — when a fraudster is shut down on one payment method but starts back up using another.

Example 2) Since digital wallets can be funded with a credit card or bank-linked account (think the big box retailer with red colors and 5% discounts), card networks have required that if you operate this way, which is called staged digital wallets, an operator has to register with the network to ensure the systems aren’t being abused.  Some operators may put another wallet in front of that, which is known as a sequential digital wallet. This enables the first wallet to be funded with a credit card, and then that money is used to fund another wallet that hides who the cardholder is and how the money is being used from the card networks.  Now the consumer can go gamble, buy counterfeit goods or do other things because the wallet they are using is essentially hidden from the card networks.

In the 3rd and final example) consumers simply utilize the mobile wallet of another country to make purchases of things that are illegal in their own countries, which is referred to as local law arbitrage.

In any case, you as a merchant must figure out if it’s worth the risks.  If you can avoid the reputation damage, law enforcement intrusion or regulator scrutiny that can come as a result of being held liable for fraud taking place.

If you are a small company – sticking with tried and true credit and debit and the occasional gift cards and perhaps an ApplePay once in a while might be your best option while people who can afford the risk work out security to protect the merchants.


Headquartered in Pinole California, MerchantZoom, Inc. was founded by Wally Arakozie. Previously employed by one of the largest merchant processing companies here in California for nearly a decade. Since the company’s beginnings MerchantZoom, has grown into a reputable national merchant provider.  Along with delivering state of the art technology and competitive rates, MerchantZoom, thrives on personalized local customer service and support. In order for your business to ZOOM!



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Content Release Date March 13, 2017 – MerchantZoom Inc.

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