Large Merchant Refunds are Risk, Why?


Underwriting and Risk management are often difficult to understand, and in an earlier post we addressed merchant risk a bit.  However, there is enough information available for most business owners to understand the basics of risk and why certain factors matter.  However, a more common risk issue recently is regarding large merchant refunds to a customer card.  You are probably wondering like most merchants, I understand that a sale can be risky but why is a refund risky.

The short answer is that large merchant refunds are often a sign of fraud being committed against you and your business.  Fraudsters always adapt to changes as banks and processors attempt to thwart them.  The advent and adoption of EMV has forced them to come up with new ways and one of the newest ways involves submitting a large fraudulent refund on a debit card.

How could that happen you wonder, when your manager or yourself directly monitor who runs transactions and check reports?  These sophisticated fraudsters have developed a method by which they are able to guess an unsuspecting merchant’s MID information the necessary verifying data.  They are able to impersonate the processing terminal of the merc

Large Merchant Refunds AMP PAYMENT SYSTEMS

Large Merchant Refunds AMP PAYMENT SYSTEMS

hant and subsequently submit a refund to a debit card they control.  Suddenly, a large refund transactions worth dollars or tens of thousands of dollars are processed.

When a daily batch amount is positive which the vast majority of daily batch transactions are, the funds are then processed and deposited into your bank account.  This is the normal flow of a transaction that you are familiar with.  However, if you processed refunds that were greater than your sales the negative amount would be withdrawn from your bank account.  The fraudsters have begun taking advantage of that, and when they fraudulently refund that debit card the balance is withdrawn from the business owner’s account.

In an effort to combat this, risk analysts are monitoring for activity out of the norm including large merchant refunds.  There are often times that call for a valid refund of a transaction that was not processed via the same credit card.  However, even though you may not always like what you hear from the risk department the reality is they are looking out for all of us.

So, the next time we have to request a piece of information or ask a question, please just know where it comes from.  The business of keeping you and your customers secure is more difficult than it seems, but we are all partners in fighting fraud!!