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Merchant Account Risk
![*]() As credit card fraud gets more sophisticated,
fraud-fighting technology and approaches also have to become
savvier. There is a need for merchant acquirers also must
start more aggressively protecting themselves and cooperating
with each other.
Acquirers know that opening a merchant account is like granting
an unlimited line of credit, without having the benefit of
collateral. For many acquirers,
merchant accounts are opened without the luxury of having loss reserves set aside. On many
occasions, however, chargeback losses are revealed that have
been rapidly building on a merchant account.
Somehow, acquirers seem to be sheltered from the idea of merchant
risk, even while decreeing merchant sales quotas. The concept
that today's deposits based on card numbers become tomorrow's
cash withdrawals or wire transfers is sometimes overlooked
in the pursuit of high-volume accounts, with high profit potential
from discount, transaction and monthly management fees, perhaps
accompanied by cash management services, loans and other non-interest
income.
The sense of accomplishment that comes from booking a profitable
account must be balanced by the realization that the risk
must be closely managed and what if scenarios kept in mind
at all times. What if the necessary documentation is not on
file? What if all the transactions result in chargebacks?
Especially for merchant acquirers who want to take on merchants
such as Internet startups, telephone and mail order shops,
and other companies with a high risk of fraud and chargebacks,
solid loss prevention and risk management strategies are a
must.
While the acquiring side of the credit card business is different
than the issuing side, the approach to loss prevention has
many similarities. These include the need to review the merchant
application carefully; to confirm the information furnished;
to monitor account activity; to respond to questionable patterns;
and to educate merchants about how to protect themselves.
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