Risk is the potential that events, expected or unexpected, will have a detrimental effect on a bank’s earnings, capital, or franchise or enterprise monetary worth. There are several variables that determine the merchant risk involved with merchant accounts and the credit card processing done within these accounts. It is important to know that acquirers or issuing banks that offer merchant services to merchants assume the risk of financial losses. Thus, proper due diligence is required in underwriting a business.

Merchant Risk with Payment Processing

Credit Risk – Processing credit cards is comparatively similar to extending a line of credit. Acquiring banks rely on the creditworthiness of merchants to accept responsibility and pay for charge-backs. If the credit of the personal guarantor is poor or marginal the merchant account will be likely declined, or stipulations will be implemented such as reserves or funding delays.

Operational RiskOperational risk stems from failure to process a transaction properly, employee error or misconduct, problems with service or product delivery. A failure anywhere in the process can have implications on the bank and can bring substantial fines.

Compliance Risk – This risk can exist when products, services, or systems associated with a third-party relationship are not properly reviewed for compliance, or when the operations of the third-party relationship are not consistent with law, ethical standards, or the bank’s policies and procedures.

The risk encompassing credit card processing is convoluted and at times perplexing. As a merchant it is equally important to use caution when selecting a merchant service provider that will implement appropriate procedures, policies, and processes that address compliance and fraud risks. The most adequate way to prevent risks is to partner with a payment processor that takes measures to access for all risk variables. Contact AMP Payment Systems today to learn if we are the right partner for your merchant processing needs.