The highlight of my week comes in the form of Muay Thai classes at the gym every Saturday morning. While the worlds of martial arts and payments rarely intersect, one valuable lesson applies to both – knowing how to interpret pain.
Some pain is surface level and can be pushed through to build resilience and strength. Other pain, however, can signal that something is seriously wrong and needs to be addressed. Being able to distinguish between the two takes trial and error but is a valuable skill in both combat sport and the business world.
Go deeper with GlobalData
The same theory applies when working with new partners. There are moments when it’s necessary for organisations to step away, for example, if working with a merchant who is blatantly disregarding regulations. However, there are also times when businesses throw the towel in too soon and miss out on an opportunity. This could be because they wouldn’t collaborate with the merchant and take control of potential risks, or simply because they didn’t take the time to fully assess the business at hand.
A lot of the time many payments businesses adopt severe policies. However, this overly cautious strategy often impacts the onboarding of high-quality merchants and limits opportunities for the business. Others take a more reckless approach and work with high-risk merchants to make a quick profit. This short-sighted approach often leads to overwhelming risks or severe regulatory breaches, which could potentially cripple the payments provider and shut down the business. Neither extreme approach has any longevity, which is why a balanced approach that considers potential hazards is essential.
Understanding risk
An element of risk exists in any transaction, particularly in today’s online payments industry, which can be faced with threats like fraud and chargebacks. The level of vulnerability to these risks for different types of merchants can depend on factors including the industry they operate in, their location, and even the time of year – fraud and chargebacks can spike during peak shopping season.
This is particularly true for real-time payments, where the near-instant nature of transactions leaves little room to spot errors. As the real-time payments market continues to grow in global commerce, companies need partners who can ensure speed, security and have a strong commitment to compliance, regardless of the size or risk profile of their clients.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataHigh-risk merchants, such as those selling firearms, adult content, or gambling services, often face higher transaction fees or may be excluded from certain payment providers.
Risk, sales and compliance
While risk and compliance teams work side by side, they serve different functions. Compliance teams ensure that potential merchants adhere to relevant regulations and the risk team evaluates the financial, operational, and reputational risks associated with processing a merchant’s transaction.
There is also a big difference between high-risk and non-compliant merchants. Some high-risk merchants meet compliance standards, while some low-risk merchants do not. It’s true that legitimate payment service providers can work with any risk category their internal policies allow, but they cannot service a merchant that isn’t compliant with the relevant regulations, as this will lead to serious consequences.
In many payment companies, the sales team and compliance department often operate at cross purposes. The common stereotype suggests that sales prioritise revenue by onboarding as many merchants as possible regardless of their quality, while compliance focuses on mitigating risk by avoiding non-compliant clients. This dynamic should be avoided.
Firstly, the sales team needs a solid understanding of risk and compliance to avoid signing low-quality merchants and surrendering to pressure from high-risk clients. Secondly, the compliance team should seek opportunities to say yes, analysing whether onboarding legitimate merchants with challenges, without increasing risk, will be possible. Few clients are perfect or beyond redemption, but many potential clients fall in between, and a proactive compliance department can successfully bring them on board.
A savvy approach to risk management
So, how can your company leverage intelligent risk management instead of rigid thinking? As in so many walks of life, communication is key. With this in mind, payment companies should look to foster a compliance culture where every single employee in the company understands the relevant regulations. Merchants need to see the initial business review as a best practice rather than a regulatory step, helping to build a long-term, mutually beneficial relationship. This buy-in is essential, even if the process is challenging and success isn’t guaranteed.
While many companies have turned to automation in the onboarding process, human oversight remains vital. The old adage that ‘a computer can never be held accountable, therefore a computer must never make a management decision’ applies here, but fully automated onboarding risks outsourcing the relationships that are going to sustain your relationship.
Reducing risk in the payments ecosystem calls for strong compliance measures with intelligent decision-making. Companies that do this demonstrate how to effectively manage risk while ensuring that compliance is a helpful tool, not a hindrance. This balance allows businesses to tell the difference between superficial pain and a serious issue. And a special thanks to Greg Collins at Fordes Gym for teaching me about the different types of pain!
Scott Dawson is CEO at DECTA
