In today’s digital landscape, the rise of online transactions has unfortunately been accompanied by an increase in fraudulent activities, particularly in sectors such as utilities and recharges.
Businesses that offer UPI, debit, and credit card payments face the constant challenge of safeguarding their operations against various types of fraud. As these payment methods become more prevalent, implementing effective strategies and mitigation measures is crucial to ensure safe and secure payments. This blog delves into best practices that helps businesses reduce the chance of fraud.
Know Your Customer (KYC) Compliance
To combat fraud effectively, businesses must prioritize Know Your Customer (KYC) compliance. This involves collecting government-verified documents such as Aadhaar, PAN, or utility bills from customers to confirm their identities. For transactions that are high in value or occur frequently, it’s essential to periodically re-verify KYC information. Additionally, conducting Contact Point Verification (CPV) for sub-vendors helps validate business legitimacy.
Business Correspondent (BC) Agreement / DMT Certificate
During the onboarding process, it is crucial for businesses to provide a Business Correspondent (BC) Agreement that grants them the authority to manage utility payments, recharges, and money transfers. This agreement not only legitimizes the business’s operations but also helps establish a framework for compliance and accountability.
Verification of Utility Service Providers
Businesses should conduct thorough due diligence on utility service providers to confirm their legitimacy and compliance with regulatory standards. This verification process is vital for ensuring that services offered are transparent and reliable.
Transaction Monitoring for Suspicious Activity
Real-time transaction monitoring is a key strategy for identifying suspicious activity. Businesses should set up systems to flag unusual activities such as excessive bill payments or multiple transactions from different accounts targeting the same utility. By establishing thresholds for transaction volume, frequency, and location, businesses can quickly investigate red flags—such as frequent small payments made by the same user to various utility companies.
Restrict Multiple Utility Payments from a Single Account
Implementing controls to prevent multiple payments from a single account to different utilities can significantly reduce the risk of money laundering through layering funds across various services.
Monitor Beneficiary Accounts for Suspicious Patterns
Automated systems should be employed to monitor beneficiary accounts for suspicious payment patterns. For instance, if multiple bill payments originate from different sources to the same utility provider, it may indicate fraudulent activity.
Whitelisting Withdrawal Accounts & Withdrawal Restrictions
To enhance security, businesses should implement a whitelisting process for withdrawal accounts. Verifying these accounts before processing transactions helps prevent unauthorized withdrawals. Limiting withdrawals to the source account and incorporating two-factor authentication (2FA) adds an extra layer of protection.
Merchant Responsibility for Sub-Vendor Transactions
It is essential for businesses to ensure that sub-vendors registered for utility services only process transactions relevant to those services, such as electricity or water payments. By holding sub-merchants accountable, businesses can prevent unauthorized transactions and minimize the risk of fraud within their operational ecosystem.
Agreements with Telecom Operators for Recharge Services
For mobile and DTH recharge services, businesses must secure formal agreements with telecom operators, such as Airtel or BSNL, to authorize these transactions. Having these agreements in place bolsters the merchant’s credibility and mitigates risks associated with unauthorized transactions.
Audit Trails and Record Keeping
Maintaining detailed transaction records is critical for supporting traceability in the event of fraud or money laundering investigations. By prioritizing record-keeping, businesses can strengthen their defenses against fraudulent activities.
Clear Terms & Conditions (T&Cs) and Refund Policies
Businesses should clearly outline their terms and conditions (T&Cs) along with refund policies to facilitate smooth transactions and minimize disputes. By providing transparent guidelines, customers will have a better understanding of their rights and the merchant’s obligations, which fosters trust and encourages positive customer experiences in the utilities and recharges segment.
Summing up
By implementing best practices such as KYC compliance, transaction monitoring, and maintaining clear agreements with service providers, businesses can significantly enhance their security frameworks. By prioritising fraud prevention, businesses can create a safer environment for their customers.
