by Collin Harbour

Since the onslaught of COVID, fraud costs have risen 15 percent for U.S. retail and ecommerce merchants. According to the Federal Trade Commission, more than 2.1 million consumer fraud reports occurred in 2020, and imposter scams remained the most common type of fraud, causing nearly $1.2B of losses. With increased identity theft threats in addition to fraudulent store fronts, banks today face immense risk when trying to prove businesses legitimacy.

To combat this trend, on-site merchant inspections are often used by lenders as a preliminary assessment and investigation before underwriting a merchant account. Also known as on-site surveys, merchant inspections, or merchant on-site investigations, these inspections verify the physical location of a business, providing objective visual and operational analysis, helping to determine legitimacy and preventing fraudsters from opening a “shell” of a business.

How Do They Work?

Merchant site inspections require a manual gathering of evidence to review a merchant’s site or premises. Typically provided by a third-party, these inspections are not limited to brick-and-mortar structures as e-commerce businesses must also be verified. In these cases, the inspection would occur at the office or building where day-to-day operations of the e-commerce business take place. Merchant site inspections range from quick, drive-by surveys to more in-depth inspections, which entail both the exterior and interior of the business.

Exterior Inspections

Exterior on-site inspections are also called drive-by inspections and are typically less involved. They can be announced or unannounced to the merchant. The exterior inspection generally includes exterior photos of the business, including the signage and address verification. These types of inspections do not include extensive information about the merchant or the business itself but does confirm the business’ location.

Interior Inspections

Interior on-site inspections are more detailed and are used to verify a merchant’s existence, inventories and operations. Interior inspections may include exterior photos of the business, interior photos of the business including equipment and inventory, and details of building layout and square footage, tallying the number of phones, computer and employees as well as other details of the business. It also provides evidence that a business has an establishment at the specific address and reviews the capital investment of the merchant, creating stronger evidence of the legitimacy of the business.

Both exterior and interior inspections are usually performed within a three-to-five-day time period between the time the inspection is requested until its completion, depending on property access.

Before Conducting Merchant Site Inspections

When considering merchant site inspections and their providers, it’s important to review several items:
     - Are both an interior and exterior inspections needed and does the provider offer both?
     - What geographical range of coverage is provided from the inspection company?
     - What is the delivery time between when the inspection is requested and when it is delivered?
     - Can the inspection request be submitted online and does the system accept reports and photographs easily?
     - When the information is being submitted, does the service provider ensure the safety and security of the data?

By using merchant site inspections to check business occupancy and legitimacy, a lender gains confidence in loan viability. Verifying businesses and their practices confirms they are what they appear to be, ultimately helping to fight fraud and minimize loan risk.

To learn more about our merchant site inspections, please feel free to contact us at Trinity Field Services. We’d love to help.