Being in the payments industry is a risky business. The risk surrounding credit card processing is complex yet can be prevented with the right policies and processes. That is where MAPP Advisors comes in. We work with acquirers, ISOs, payment facilitators, sponsor banks, gateway companies, etc. to prevent risk.
MAPP offers a full suite of risk related engagement services:
- Underwriting guideline reviews
- Authoring and/or reviewing AML policies
- Risk guideline reviews
- Assistance with selection of anti-fraud tools
- Payment facilitation risk guideline creation
Underwriting Process Risk
An inadequate merchant underwriting process can create significant financial liability for acquirers and payment facilitators if they are not following a methodical approach. For example, if a merchant sells travel packages to customers then goes out of business, the acquirer will be responsible for the entire pre-payment exposure. Hence, acquirers and payment facilitators can substantially reduce their exposure to credit risk by developing a comprehensive underwriting process.
Merchant Underwriting Process Considerations
When developing a merchant underwriting process, it is important to note that not all merchants carry the same level of risk exposure. In other words, a “one size fits all” approach cannot be applied when formulating a merchant underwriting process. The number of variables that determine merchant underwriting risk include but are not limited to the following:
- Financial Stability
- This is the single most important consideration in the underwriting process. Specifically, new merchants, merchants with weak financial statements or cash positions, and companies whose owners have a poor credit history will be perceived negatively by the underwriting department.
- Merchant Type (“MCC”)
- One type of MCC poses a greater risk than another. For example, a restaurant business has a lower risk compared to advertising services.
- Card Acceptance Method
- In a card-not-present transaction, cardholder data can be easily compromised because of the invisible nature of the cardholder authentication, but in a card present transaction the cardholder is present at the terminal to verify the authenticity of the card.
- Delivery Method
- Risk of chargeback compounds if a merchant sells goods or services for future delivery. For example, sales of airline tickets and vacation packages are fraught with risk because customer disputes are not initiated until after the date of fulfillment.
- Merchant Background
- Background checks on merchants will protect acquirers and payment facilitators from unpleasant surprises. Typical checks would include FICO scores, reference checks, inspection of physical premises, licenses to operate and MATCH/OFAC reviews.
As demonstrated above, an effective underwriting process is necessary to prevent risk. MAPP Advisors has extensive experience in developing underwriting processes. We specialize in implementing risk prevention and compliance programs in the payments industry. To get a more comprehensive overview of how we can help your business, please contact us at 615-656-0315 or [email protected].