Bogus Leads and You: Using KYC to Prevent Disaster

It’s the end of the sales month. You’re shy of 1 sale of your quota to hit your next bonus tier. The clock is ticking, and you’ve exhausted every lead in your [digital] Rolodex. Then it happens, like the sun beaming through the clouds after a storm. A hot lead ready to sign up for merchant services! It’s almost too good to be true! After a quick back-and-forth email exchange, they sign the merchant application and provide you with their documentation. Some images are a little fuzzy and hard to read, but it doesn’t matter. This is a level 1 retail merchant; it should be an easy approval. You submit the application, confident you’ve had another approval for the month, and you can finally take that long-awaited summer vacation.

Then it happens, first slowly, then all at once. The account is pended for a mismatched tax ID. The merchant sheepishly explains how odd that would be! It must be because it’s a newly issued tax ID, and their crudely scanned proof of issuance should help clarify the error. Not to worry, you think. Just a minor hiccup. After this, you get another alert. This time it’s for an invalid SSN.  Then another alert. A quick Google Street View shows that the address belongs to a longstanding popular quick service restaurant- one that is already processing with this ISO. Finally, the Underwriter informs you that a quick verification phone call with the merchant failed and that the person who signed the paperwork might be a fraud. They will not approve this account, and you have lost the sale.

It’s every salesperson’s nightmare to lose what would have been a surefire deal. In this case, though, the merchant was a fraud and was trying to attain a merchant account to launder money- it would never be a real sale, but a real headache. Fraudsters and scammers are getting more and more clever to try and fool salespeople. Tools like generative AI chatbots, insecure online forms, and convincing-looking counterfeit documents are increasingly prevalent in the merchant services industry. At SignaPay, while any merchant application goes through a rigorous KYC process, it’s a waste of resources for both the processor and sales agent to deal with bogus sales.

As sales partners, you are the first line of defense when identifying bogus leads and bogus merchants. Here are some tips on how you can KYC before getting to the signature stage of a merchant application:

1. Customer Identification: Obtain the customer’s full legal name, contact information, and residential address. Request a government-issued photo ID, such as a driver’s license or passport, to verify their identity.
2. Business Verification: If you are dealing with a business customer, gather information about the company, including its legal name, registration number, address, and business type. Request relevant business documents, such as business licenses or certificates of incorporation.
3. Address Verification: Verify the customer’s address by comparing the provided address with official documents, utility bills, or other proofs of residence.
4. Phone and Email Verification: Confirm the customer’s phone number and email address by sending a verification code or making a verification call.
5. Customer Risk Assessment: Assess the risk associated with the customer based on their industry, transaction volume, location, and any previous suspicious activities.
6. Third-Party Database Checks: Use reputable third-party databases or identity verification services to cross-reference customer information and identify potential risks or inconsistencies.
7. In-Person Meetings: If feasible, arrange in-person meetings with the customer to establish a more personal connection and validate their identity.
8. Document Validation: Scrutinize identification documents for signs of forgery or tampering. Ensure that the documents are not expired and belong to the person presenting them.
9. Customer Screening: Check customer names against government watchlists, sanction lists, and other databases to ensure they are not involved in criminal or prohibited activities.
10. Red Flags Detection: Train your sales team to recognize red flags that may indicate potential fraud or money laundering and have a protocol for escalating suspicious cases.
11. Enhanced Due Diligence (EDD): For high-risk customers or transactions, consider conducting enhanced due diligence, which may involve gathering additional information and conducting deeper investigations.

Remember that the level of KYC procedures you apply should be commensurate with the risk associated with the transaction and the customer. Striking the right balance between customer convenience and security is crucial to maintaining a positive sales experience while mitigating potential risks.