For years, merchant acquirers have, out of both necessity and routine, utilized fairly streamlined categories and criteria when determining how to assess the risk a new merchant possesses. Whether its credit, fraud, or reputational risk, the criteria have largely revolved around business type or MCC (Merchant Category Code), card acceptance method, transaction size and processing volume. Other considerations like future delivery or billing method will factor in as well but for the most part, processors will typically place a prospective new merchant into one of a limited number of buckets and make their credit decisions accordingly.
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“As the industry and commerce in general has evolved, it has become increasingly difficult to categorize merchants based on limited and narrow criteria. “
Emergence of Omni-channel
Business models that traditionally would have categorized a merchant as “High Risk” are now exceedingly common for the largest and most successful businesses and retailers across multiple channels. This is even more prescient and crucial as more retailers have migrated to an E-commerce environment following pandemic imposed restrictions in an effort to continue to operate and reach their customers. With the emergence of omni-channel merchants selling across multiple channels with a heavy focus on mobile and ecommerce, card-not-present transactions no longer present the same risk profile they once did. Similarly, merchants who bill customers via recurring or subscription models are now commonplace with subscription box and online membership merchants. Even how merchants market themselves and drive sales is constantly changing with social media on the forefront. Campaigns can lead to rapid growth in sales in short periods of time; a change that acquirers traditionally would view with difficulty.
A New Approach
At Signature Payments, we continue to look at each new merchant relationship with a consultative and qualitative approach. Our risk and underwriting teams understand the nuances of many of the new and emerging ecommerce business models and what risks they do or, more commonly, do not present. We utilize technologies and strategies tailored to reviewing and monitoring the unique fraud concerns of each merchant’s model and educating merchants on those challenges. Understanding the challenges and opportunities our merchants face allows us to focus on the most important factors and help our merchants succeed and grow while protecting our merchants, their cardholders, and our partners from risk and fraud.
It seems fundamental but understanding a prospective merchant’s business model is critical for effectively underwriting and managing it. That includes understanding the third-party services and systems that a merchant utilizes as integral components of servicing their customers. Often our eCommerce merchants rely on third parties for web design, hosting, affiliate marketing, fulfillment, customer service and more and understanding how these components work together to allow our merchants to get their product or service to the customer is essential for effectively monitoring these types of accounts.
Understanding the types of fraud each individual merchant is most susceptible to is equally essential. As the prevalence of EMV has shifted significant portions of fraud from the card present environment to online and card-not-present transactions, the importance of educating merchants on proper fraud management and security techniques is critical. Advancements with the 3D Secure Protocol have allowed eCommerce merchants to fight disputes stemming from friendly fraud. Machine learning has allowed fraud filtering tools to more effectively combat the types of fraud that individual merchants experience based on their historic and current processing activities.
Signature is dedicated to educating our Merchants and Partners on the latest and most pressing issues affecting them and their businesses as it relates to risk, compliance, and fraud. We look at every opportunity as a unique business with its own set of potential and challenges and we look to utilize the most effective tools and strategies best suited to for them.
Signature would love to help you and your merchants navigate how to assess risk. Contact our team and lets talk.