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Transaction Laundering Is the Greatest Risk to a Portfolio, New LegitScript Report Says

Among many challenges in the payments risk and compliance space, transaction laundering remains the greatest risk to a portfolio. That is one of the key takeaways from LegitScript's inaugural Payments Risk & Compliance Benchmarking Report.

More than one-third of survey respondents reported transaction laundering as very challenging or extremely challenging, and it is the top issue that results in automatic merchant decline or termination. More than a third of respondents also listed problematic marketing claims for merchants in highly regulated industries as very challenging or extremely challenging.

LegitScript's inaugural benchmarking report looks at fundamental characteristics of risk and compliance in payments, including size and scope, top challenges in the industry, use of merchant monitoring as a risk mitigation measure, and future trends and challenges.

Other key takeaways include:


    • Technology and automation are critical tools for scaling as merchant portfolios grow. Respondents with larger and more complex portfolios reported needing more technology and more sophisticated support to manage them.


    • ISOs are among the most revenue-driven organizations. Although their sample size was small for this survey, ISOs had the lowest commitment to compliance, smallest analyst teams, and least automation. Because these factors may increase compliance risk, third-party ISOs may warrant the most shadow monitoring.


As companies grow, they appear to turn to technology and automation for risk and compliance scaling. Process automation invariably rises as merchant size goes up. The risk team size, however, appears to level off at moderate portfolio sizes. The shift appears to happen somewhere in the 10,000- 99,999 merchant range. Furthermore, a company's commitment to compliance generally grows along with its portfolio size. See the graph below.

Most respondents said their companies show a moderately strong commitment to compliance over revenue growth (averaging 8.3 out of 10 on a scale where 0 maximizes revenue growth and 10 prioritizes portfolio compliance). There is an upward trend in compliance commitment as portfolios get larger.

Among organizations included in the survey, most reported compliance commitment higher than 8.0, with independent sales organizations (ISOs) reported to be the most revenue-driven. Of all organization types, ISOs had the lowest average commitment to compliance, lowest number of automated compliance processes, and lowest average number of risk analysts. No ISO respondent reported more than 10 analysts on their risk teams, regardless of portfolio size. See the graph below.

LegitScript's benchmarking report also looks at future trends in the context of technology and data, products and fraud, and processes and regulation. Respondents listed concerns such as:

    • Keeping up with changes in payment types, including QR codes, contactless, and virtual currencies


    • Transactions made on mobile apps, especially "super apps" where it's difficult to monitor all activity


    • The complexity around marijuana and CBD sales


    • Counterfeit goods, illegal claims, and deceptive marketing tactics


    • Increased implementation of industry regulations as prescribed by state and federal legislation



Want to read the full report? Get it now.


David Khalaf is a writing, communications, and marketing professional with specialties in media, investigations, content strategy, and writing instruction. His 20 years of writing, media, and communications work have included two top-tier universities (USC and UCLA), print and digital magazines, consulting firms, and technology companies.

His current work involves content strategy and development at LegitScript, a company that helps the world's leading search engines, payment service providers, and internet platforms and marketplaces do business with legitimate, legally operating entities in more than 80 countries and 15 languages around the world. LegitScript specializes in risk and compliance for highly regulated industries including CBD/cannabis, online gambling, cryptocurrencies, drugs, financial trading, online adult, scams and fraud, and more.

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