In 2024, global e-commerce fraud reached $48bn, accounting for around 42% of worldwide credit card fraud losses.
This surge has placed merchant verification firmly in the spotlight, highlighting its importance for businesses seeking to protect themselves against financial losses, reputational damage, and regulatory penalties, claims AIPrise.
Merchant verification refers to the process by which companies in industries such as e-commerce, finance, and payments validate the legitimacy of merchants before entering into transactions. This step helps ensure that merchants are lawful entities and are not engaged in fraudulent or criminal activities. It typically involves confirming business identity, assessing risk profiles, and checking compliance with local and international regulations.
The scope of verification includes reviewing business registrations, tax identification numbers, ownership details, and banking information. It also encompasses compliance checks against anti-money laundering (AML) and know your customer (KYC) requirements. As the digital economy expands, the need for robust merchant verification processes becomes ever more pressing.
The importance of merchant verification lies in five key areas. Firstly, it prevents fraud by identifying suspicious activity and blocking fraudulent merchants who might otherwise exploit payment systems. Secondly, it ensures compliance with regulations designed to combat financial crime, reducing the risk of costly fines. Thirdly, it protects customer trust, giving consumers confidence in the safety of their transactions. Fourthly, it helps to reduce reputational risks, safeguarding companies from the fallout of being linked to fraudulent operators. Finally, it mitigates legal and operational risks that can arise from working with unverified partners.
The process of merchant verification is multi-layered. It begins with prescreening and risk assessments, followed by know your business (KYB) checks, AML and sanctions screening, and financial health evaluations. High-risk merchants may also undergo enhanced due diligence, which can include background checks and in-depth audits. Increasingly, digital identity verification and biometric authentication technologies are used to bolster these measures. Importantly, verification should not be a one-off event but a continuous process, involving ongoing monitoring and periodic reverification.
To strengthen verification systems further, several best practices have emerged. Blockchain can be used to securely store and verify merchant documents, while smart contracts automate compliance checks. Artificial intelligence (AI) combined with behavioural biometrics adds another layer of fraud detection, while self-sovereign identity solutions enable merchants to share pre-verified credentials in real-time. Geolocation and device fingerprinting can help confirm identity consistency, and predictive analytics allow businesses to assess risks dynamically. Verified data marketplaces also offer pre-validated information to accelerate onboarding.
With fraud rising rapidly, these practices offer businesses a way to protect themselves, remain compliant, and create safer online ecosystems. Merchant verification is no longer optional—it has become a critical pillar of trust and resilience in today’s digital economy.
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