At the 2023 Oscars ceremony, host Jimmy Kimmel quipped, “As I glance around this room, I can’t help but ponder, ‘Could Ozempic be the right choice for me?'”
With that jest, Kimmel touched upon a reality extending beyond Hollywood, delving into merchant portfolios. The surge in demand for popular drugs like Ozempic poses a significant issue with substantial risks. These risks not only affect users facing potential health consequences but also impact payment providers, who bear the financial repercussions associated with the rapid growth of illegal transactions in this domain.
G2, a payments risk intelligence firm, revealed in its monthly review of over 6.6 million e-commerce websites and 4 billion pages of web content that trending drugs are escalating risks within the payments ecosystem.
As legitimate pharmacies increasingly transition to online platforms for dispensing medications conveniently, estimates from industry experts suggest the simultaneous existence of 30,000 to 40,000 active illegal online pharmacies. These unauthorized entities sell prescription-only medicines, including controlled substances, without requiring a prescription.
While it is the illicit merchants engaging in these activities, it is the payment providers that bear the brunt of the consequences, facing fines. Pharma-related assessments account for over 40% of all assessments in North America, with recent fines ranging from $25,000 to $150,000 per instance.
In the context of drugs in high demand posing risks in 2023, here are four substances that payment providers should closely monitor: [Content Continues]
1. Semaglutide
Semaglutide, the active pharmaceutical ingredient found in FDA-approved prescription medications like Ozempic, Wegovy, and Rybelsus, experienced a surge in popularity in 2023 as a weight loss drug. Its endorsement by celebrities has garnered widespread attention, leading to an increased demand among the general public.
However, there is a concerning trend where violative merchants are selling this product without the requirement of a prescription on e-marketplaces, social media platforms, and illicit pharmacy websites. Additionally, Semaglutide is sometimes marketed as “GLP-1” on “peptide” websites catering to the bodybuilding community, offering unapproved drugs. It is crucial for payment providers to ensure that merchants selling Semaglutide are duly authorized and comply with legal regulations.
2. Apetamin
Apetamin, an unapproved drug in the United States, contains cyproheptadine, a prescription-only antihistamine known for increasing appetite and causing weight gain. The production of Apetamin occurs overseas, and it is subsequently illegally imported into the U.S.
Primarily marketed through social media, with a focus on individuals seeking a “slim, thick” physique, Apetamin is often featured on beauty product websites, presented as a “vitamin syrup.”
In April, the FDA issued a warning to consumers about serious adverse effects associated with Apetamin use, including convulsions, hallucinations, coma, and even death.
3. THCO
Websites that focus on hemp-derived cannabinoids, such as CBD and delta-8 THC, occasionally feature TCHO, a synthetic and psychoactive cannabis compound.
In February, the U.S. Drug Enforcement Administration (DEA) clarified that THCO does not naturally occur in the cannabis plant. Consequently, it does not meet the definition of “hemp.” As THCO doesn’t qualify as a hemp-derived cannabinoid, the DEA categorizes it as a Schedule I controlled substance in the U.S. Acquirers responsible for onboarding CBD merchants should take precautions to ensure that these merchants are not involved in the sale of THCO.
4. Xylazine
In both the U.S. and the U.K., there is a growing trend among dealers who are using Xylazine, a prescription-only large animal tranquilizer, as a cutting agent for street drugs such as heroin and fentanyl. Combining Xylazine with fentanyl poses a heightened risk of fatal drug poisoning for users. The Drug Enforcement Administration (DEA) reports a significant rise in xylazine-related overdose deaths across the U.S. from 2020 to 2021.
To address this emerging threat, the U.S. Congress has recently introduced the Combating Illicit Xylazine Act. If enacted, this legislation will substantially increase penalties for the illegal use of this drug. While authorized merchants, such as veterinary pharmacies, can legally sell Xylazine, illegal drug websites sometimes list it under the deceptive term “research chemicals.”
Role of Payment Providers in Combatting Illegal Pharma Sales
Enforcing drug laws in the context of illegal online activities is widely recognized as challenging.
In the U.S., law enforcement entities like the Department of Justice (DOJ) and the FDA exert pressure on third-party intermediaries within their jurisdiction, such as payment providers. These intermediaries may unwittingly facilitate illegal transactions, and if prosecuted, they can face severe financial repercussions. Moreover, financial institutions may endure substantial reputational damage.
Due to the efforts of violative merchants to conceal illegal drug offerings, the level of risk for payment providers is often underestimated. To ensure compliance with federal law, avoid significant card brand fines, and uphold their reputations, payment providers can take the following measures:
Complete Up-Front Risk Assessments During Merchant Onboarding
Payment providers face the challenge of rapidly onboarding new merchants, often in near real-time, to stay competitive. Aggressive payment processors offer merchant accounts within minutes, intensifying the pressure on other players in the industry to expedite their processes.
In order to balance the need for speed with the necessity for thorough due diligence, payment risk experts employ various data collection and analysis techniques. This allows them to generate a risk score that predicts a merchant’s behavior over the next 12 months. Utilizing this risk score, payment providers can assess whether the perceived risk level is acceptable and then set risk-adjusted fees accordingly.
Automate Know Your Customer (KYC) Due Diligence
Automation proves to be a valuable ally for payment providers seeking swift, precise, and efficient Know Your Customer (KYC) verification. The manual KYC due diligence process is known for being slow, expensive, and inconsistent, potentially leading to oversight of critical red flags.
Through KYC automation, merchant-supplied information can be validated, and additional relevant details can be swiftly uncovered. This enables payment providers to make well-informed underwriting decisions in a matter of minutes, significantly enhancing the efficiency and accuracy of the process.
Conduct Ongoing Merchant Monitoring
Payment providers need to perceive the risks within their merchant portfolios as highly dynamic and subject to constant evolution. Merchants have the capacity to alter the nature of their activities over time, leading to a significant shift in the risk profile post onboarding.
Additionally, bad actors might present seemingly benign front sites initially to secure merchant accounts. The detection of suspicious activity and high-risk transaction patterns often becomes apparent only through ongoing monitoring and subsequent investigation.
Continuous monitoring positions payment providers to respond promptly, which is crucial considering that many fines and assessments are linked to the duration of the infraction. This proactive approach allows for swift action in response to evolving risks within the merchant portfolio.
Conclusion
Beyond the direct compliance and financial penalties associated with processing illegal pharmaceutical transactions, payment providers fulfill a significantly underappreciated role in addressing a severe global issue.
Through monitoring and taking action on drug-related risk information, these providers contribute to safeguarding the well-being of their customers and preserving the integrity of the broader financial system.
By staying vigilant against illicit attempts to exploit the demand for certain drugs, payment providers not only protect themselves but also make a meaningful social contribution in the ongoing fight against illegal activities and their associated risks.