Social KYC: Ignore It At Your Own Risk

Payment facilitators have many tools at their disposal to help them understand the risk of taking on a particular merchant’s business during underwriting. In many cases, though, the tools rely on information provided by the merchants themselves.

To validate that information merchants have provided, however, PFs have a vast resource for fishing out the true nature of the merchant’s business and the identities of the people involved.

A merchant’s presence across various online forums and social media sites – their digital footprint – has emerged as a useful supplement to traditional underwriting practices.

During underwriting, social media and other sites can help either validate a merchant’s application or call into question what they’re telling you, according to Marcus Smith, the VP of risk management for payments technology provider i3 Verticals.

“Ultimately, they’re going to cater to their true clientele. They want to draw that business to their doorsteps. So you’ll see that, on social media, you may find links to individuals through phone numbers and addresses. They want those people to find them,” Smith said.

The investigation begins with the information given on the merchant application, according to Melissa Sutherland, director of merchant solutions for LegitScript. A merchant’s presence on common platforms such as Facebook and LinkedIn can provide clues to whether their stated business is legitimate. What do their sites look like, and do they logically fit in with the information you’ve been given?

“The majority of the time, you’re going to find awesomeness on all these platforms, but occasionally you’re like, oh, that’s probably something that I as a merchant provider don’t want to be involved in, I don’t want to move that money, or I’m not allowed to move that money,” Sutherland said.

Other useful sites include Yelp, Pinterest, Instagram and Reddit – places where customers may be leaving reviews or merchants and their customers may be otherwise talking about the business.

“Social media discussion boards are a wonderful forum to catch consumers of your merchant having a discussion about what the product actually is,” she said.

Verticals vary

In addition to verifying the business a merchant is in, leading PF WePay – which was an early adopter of using social media within underwriting – also uses it to help verify another important piece of information, according to John Canfield, the company’s VP of risk.

“One key part of underwriting is understanding, is this person that we’re verifying truly the authorized representative of this business?” he said.

He described the use of a merchant’s social media presence in underwriting as an important source of data within a wider underwriting program, but one that varies according to the vertical.

“Everyone is going to be doing KYC verification, but this is something where there’s more variation,” he said.

A home contractor might not be expected to have a significant social presence, for example, whereas a marketing consultant likely would.

But regardless of the vertical and the usefulness of social specifically, understanding an overall digital footprint is often very important.

“I think probably more and more people are turning to it as time goes on, just because if you want to offer a very good experience and easy onboarding to people but there are these bad actors out there, you have to take advantage of all of the data sources that you have,” Canfield said.

“I would say, if you ignore it, you do it at your own risk.”

Applying a risk-based approach

Canfield also noted that the practice of researching a digital footprint is not simply about rooting out bad actors. More often, it is about providing a level of confidence that the merchant is indeed who they say they are and conducting the business they said they were conducting.

Sutherland agreed. Even discrepancies or things that don’t add up don’t necessarily indicate nefarious activity, she said. A new product line can throw off risk models because it doesn’t match up with the information gleaned in underwriting. Social media can be part of the investigation into what has changed.

“It’s about being able to weigh those factors together and filter out changing business models or growing businesses to, uh-oh, I really need to be very worried about what just happened in my merchant account,” she said.

Sutherland also cautions against “being a caped crusader.” When you’ve found a thread, it’s tempting to keep pulling it, she said, but It’s important to balance chasing the bad guys with validating that your merchant is real and moving on.

“Continuously train your teams to understand when am I in a rabbit hole that is going to net results, and when am I in a rabbit hole because I can’t help myself?” she said.

Smith agrees that a risk-based approach is best. Experience helps payment facilitators know which paths are worth going down and how to find the most relevant information, he said.

Help is available from service providers as well.

“Payment facilitators have kind of blown up this old school notion of the way it used to be and revolutionized the way that just in time underwriting happens. The easiest way to do it with scale is to have solid, robust partnerships you can rely on,” Sutherland said.

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