Over the last two weeks, I’ve discussedtrends affecting the merchant acquiring space that will serve asthe core topics, among others, for Mercator’s merchant acquiringresearch for the year.
In the first post I introduced the series anddiscussed issues related to mobility that are impacting merchantacquirers. In the second post, I discussed multichannelmerchant services and how payment-service providers are scramblingto meet demands in this growing segment.
This week, I look at the third major theme currently at play inmerchant acquiring that also touches upon mobility.
Risk Management
The influx of mobile card acceptance solutions has had an effect onthe way merchant acquirers manage risk. Devices that convertsmartphones to payment terminals have effectively entered thenonbusiness marketplace, enabling private individuals to be cardpayment acceptors. The aggregators and ISOs that support thesesolutions typically operate as the merchant of record. As such, thejob of risk management-especially when the solution provider is astart-up from outside the stable of experienced payments industryplayers-is increasingly an upstream activity. For instance, notonly is Square required to do extensive monitoring and duediligence on its users, but Chase Paymentech as the acquirer ofrecord also watches Square’s activity with great scrutiny.
The barriers to adoption of mobile card acceptance solutions arerelatively slight compared to the complexity merchants canencounter when signing with an acquirer for a traditional merchantaccount. As more acquirers bring mobile solutions to market orsupport upstart partners, risk management systems and procedureswill need to be assessed and tuned to analyze these new types ofcard acceptance behavior.
Mobility is not the only market trend affecting acquirer riskmanagement. The spread of EMV and other dynamic authenticationmethods at points of sale around the world is pushing fraudstersmore and more into card-not-present channels. Merchant acquirersand their merchant clients are most exposed to fraud on CNPtransactions. Since fraudsters are migrating to the channel ofleast resistance in the face of EMV, CNP acquirers will need toensure that risk management systems are up to the task.
It’s no accident that my post about the third trend for acquirersto watch in 2012 coincides with the launch of Mercator’s newestadvisory service: Fraud, Risk & Analytics. I’m working on thisservice as the lead analyst. I’d love to hear from this site’sreaders about their current activities in the risk management anddata analytics realm as my colleagues and me build our newpractice.