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Foiling Fraudsters with Great Velocity

With the economic disruption caused by the COVID-19 pandemic, cannabis merchants have had to act fast to adjust their business models to challenging conditions, while also managing with the increased risk of fraud by criminals trying to exploit the situation.

“In Ontario, at the outset of COVID, cannabis was deemed an essential service,” recalls Ryan Pakyam, Director, Customer Success at Merrco Payments. “Then the government removed cannabis as an essential service but quickly reconsidered this decision and just after a few short days it was moved back to essential.” The cannabis dispensaries closed briefly and then reopened with an emergency injunction for click-and-collect curbside pick-ups only. Making the Transition to Click-and-Collect Cannabis Pick-ups

Merchants went from secure chip-and-PIN-terminal transactions in the store to what we call ‘card-not-present’ transactions. Merrco started working with click-and-collect partners, such as Dutchie, Buddi and Super Anytime, allowing people to use an app to see what inventory is available at different cannabis stores, place an order and then go pick it up. Unfortunately, these kinds of transactions are high-value targets for fraudsters.

Merrco worked hand-in-hand with cannabis dispensaries to get them up and running quickly under the new conditions. At the same time, its risk and support team closely monitored the situation, looking for fraudulent abuses of the card-not-present payments.

“Being aware that criminals would try to take advantage of this situation, we continued to add new validations and further checkpoints to protect our Merchant customers. Providing the Protections of Velocity Reports

As part of its service to cannabis merchants, Merrco emails three Velocity reports a day to each merchant, flagging transactions falling into a “suspicious pattern.” Suspicious activity could be someone using multiple credit cards to try to make a cannabis purchase, or one person using the same card to make multiple purchases.

It was the latter problem that cropped up at one dispensary in Kingston. “Not only was the transaction flagged for our customer in the velocity report but the Merrco team alerted the customer right away” recalls Pakyam. “I contacted the asset protection manager to say we’ve flagged these transactions for you and they are actually pending in the system for pick-up.”

The dispensary store manager was quickly notified and prepared when two men and one woman came to pick up their order.

“A store employee called 911,” says Pakyam. “The police arrived and started questioning [the suspects], at which point two of them tried to make a break for it. They were chased down and arrested in the parking lot. When police searched their car, they were able to recover a lot of cannabis products that the three had purchased with fraudulent cards from other stores in the Ottawa-Kingston area.”

“Time is of the essence with this type of fraud,” says Pakyam. We’re continuously putting in place safety measures that will allow cannabis dispensaries to move as quickly as possible to deal with each instance.”

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