During the 2023 Oscars ceremony, host Jimmy Kimmel joked, “When I look around at this room, I can’t help but wonder, ‘Is Ozempic right for me?'”
With that joke, Kimmel touched on a reality that reaches beyond the borders of Hollywood and into merchant portfolios. The demand for trendy drugs like Ozempic is a growing problem with serious risks — not just for the users who face the potential health implications — but for the payment providers who bear the financial consequences of this rapidly growing segment of illegal transactions.
In its monthly review of more than 6.6 million e-commerce websites and 4 billion pages of web content, payments risk intelligence firm G2 found it clear that trending drugs are driving up risk in the payments ecosystem.
As legitimate pharmacies increasingly move online to dispense medication more conveniently, industry experts estimate that, at any given time, there are also between 30,000 and 40,000 active illegal online pharmacies. These bad actors sell prescription-only medicine — including controlled substances — without requiring a prescription.
Though it’s the illicit merchants who commit the crimes, it’s payment providers that pay the fines. Pharma-related assessments represent more than 40% of all assessments in North America, and recent fines range from $25,000 to $150,000 per instance.
When it comes to in-demand drugs driving risk in 2023, here are four that payment providers should watch closely:
Semaglutide, the active pharmaceutical ingredient in U.S. Food & Drug Administration (FDA)-approved prescription drugs such as Ozempic, Wegovy, and Rybelsus, gained immense popularity in 2023 as a weight loss drug. Its celebrity following has captured public attention and driven increased demand by average citizens.
Violative merchants are selling this product without requiring a prescription on e-marketplaces, social media platforms, and illegal pharmacy websites. Semaglutide is also sometimes marketed as “GLP-1” on “peptide” websites that offer unapproved drugs to the bodybuilding community. Payment providers must ensure that their merchants selling Semaglutide are properly authorized.
Apetamin, an unapproved drug in the United States, contains cyproheptadine, a prescription-only antihistamine that increases appetite and causes users to gain weight. Manufacturers overseas produce Apetamin and then illegally import it into the U.S.
Commonly sold through social media targeting individuals seeking a “slim, thick” physique, Apetamin often appears on beauty product websites marketed as a “vitamin syrup.
In April, the FDA warned consumers about serious adverse effects associated with Apetamin, including convulsions, hallucinations, coma, and even death.
Websites specializing in hemp-derived cannabinoids, including CBD and delta-8 THC, sometimes offer TCHO, a synthetic and psychoactive cannabis compound.
In February, the U.S. Drug Enforcement Administration (DEA) asserted that THCO does not occur naturally in the cannabis plant and, therefore, does not fall under the definition of “hemp.”
Since THCO does not qualify as a hemp-derived cannabinoid, the DEA considers it a Schedule I controlled substance in the U.S. Acquirers that onboard CBD merchants should ensure those merchants are not selling THCO.
In the U.S. and the U.K., dealers are increasingly using Xylazine, a prescription-only large animal tranquilizer, as a cutting agent for street drugs like heroin and fentanyl. Xylazine and fentanyl drug mixtures place users at a higher risk of fatal drug poisoning. According to the DEA, there was a dramatic increase in xylazine-related overdose deaths across the U.S. between 2020 and 2021.
The U.S. Congress recently introduced the Combating Illicit Xylazine Act to deal with this growing threat. If passed, this law will significantly increase penalties for the unlawful use of this drug. While authorized merchants like veterinary pharmacies may still sell Xylazine legally, websites offering illegal drugs sometimes list it under the guise of “research chemicals.”
Role of Payment Providers in Combatting Illegal Pharma Sales
Enforcement of drug laws when it comes to illegal online activity is notoriously difficult.
In the U.S., law enforcement agencies such as the Department of Justice (DOJ) and the FDA put pressure on third-party intermediaries within their jurisdiction, such as payment providers, who may be unknowingly facilitating these illegal transactions. If prosecuted, the financial repercussions can be severe. In addition, financial institutions can suffer significant reputational damage.
Because violative merchants make efforts to conceal illegal drug offerings, the level of risk for payment providers is much greater than most realize. To remain compliant with federal law, avoid severe card brand fines, and keep reputations intact, payment providers can take the following actions:
Complete Up-Front Risk Assessments During Merchant Onboarding
Payment providers are under pressure to board new merchants quickly — in near real-time — to avoid losing to the competition. Aggressive payment processors grant merchant accounts within minutes, putting extreme pressure on the competition to speed up.
To conduct proper due diligence while still meeting the demand for speed, payment risk experts can collect and analyze a spectrum of data to produce a risk score that predicts a merchant’s behavior over the next 12 months. A payment provider can use this risk score to determine if the risk level is acceptable and set risk-adjusted fees accordingly.
Automate Know Your Customer (KYC) Due Diligence
Automation is the friend of any payment provider that desires fast, accurate, and efficient KYC verification. Manual KYC due diligence is the slowest, most costly, and inconsistent portion of the merchant underwriting process, and it leaves the door open to missing serious red flags.
In minutes, KYC automation can validate merchant-supplied information and uncover additional pertinent details needed to make informed underwriting decisions.
Conduct Ongoing Merchant Monitoring
Payment providers must consider the risks in their merchant portfolios to be highly dynamic and constantly evolving. Merchants can change the nature of their activities over time, dramatically altering the risk profile after onboarding.
Also, bad actors may initially present seemingly benign front sites to obtain merchant accounts. Evidence of suspicious activity and high-risk transaction patterns only become evident with subsequent monitoring and investigation.
Continuous monitoring puts payment providers in a position to act quickly, which is an important consideration as many fines and assessments are connected to the length of time of the infraction.
Outside of the immediate compliance and financial penalties for processing illegal pharma transactions, payment providers play a greatly underappreciated role in combatting a serious global problem.
When they monitor and act upon drug-related risk information, they help to protect the well-being of their customers along with the integrity of the larger financial system.
By remaining vigilant for illegal attempts to capitalize on in-demand drugs, providers can protect themselves and make a meaningful social contribution.