Merchant Account Risk

Fraud-fighting technology and approaches have to become savvier, as credit card fraud gets more sophisticated. There is a dire need for merchant acquirers to start more aggressively protecting themselves and cooperating with each other.

Acquirers are aware that opening a merchant account is like granting an unlimited line of credit, without any 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.

It is imperative for merchant acquirers to devise solid loss prevention and risk management strategies if they want to take on merchants such as Internet startups, telephone and mail order shops, and other companies with a high risk of fraud and charge backs.

While the acquiring side of the credit card business is different from 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.