Online shopping continues to increase every year. By the end of 2024, global sales are expected to surpass $6 trillion. As the digital payments ecosystem continues to flourish, there’s a desire to capture a share of the surging merchant services market.
There are immense opportunities for payment providers, but they come with significant risks. To navigate an increasingly complex landscape of regulatory requirements, fraud, and merchant expectations, the payments industry must now manage a growing quantity of risks in real-time, while they simultaneously onboard new merchants and process high volumes of transactions.
The ultimate key to success involves striking a tricky balance of mitigating risks and maximizing the vast e-commerce growth. Advanced fintech solutions are critical in helping payment providers overcome these challenges.
The highly competitive payments environment
E-commerce has completely reshaped how consumers shop and how businesses sell. Behind every successful transaction are digital payment services that underpin the entire global system.
As the market for merchants seeking payment services surges, there’s fierce competition among payment providers to rapidly onboard new merchants. Often, merchants will apply for accounts with multiple payment providers. This way, they can choose the one that will provide a merchant account and onboard the quickest. Within minutes or hours, a digital storefront can operate across global borders.
Maximizing e-commerce growth while meeting merchants’ expectations for instant onboarding isn’t easy. While balancing these two areas, payment service providers must adhere to regulations and card network standards. If accounts in their merchant portfolios engage in illegal or violative activity, they take on the legal consequences. Just one illegal transaction among millions poses the risk of serious fines.
The recipe for merchant risk mitigation success
The more online transactions grow, the more susceptible payment providers become to risks like illegal sales, violative activity such as deepfakes or adult content, and fraud. It’s up to payments facilitators to conduct due diligence to ensure they aren’t onboarding high-risk merchants—and today, this means they must rapidly understand the full risk scenario. To confidently navigate the complex merchant risk environment, payments providers should implement three critical steps.
- Obtain an end-to-end merchant view from the onset
Traditional underwriting can offer a limited merchant view and isn’t sufficient to counter today’s risks. To accurately predict potential danger, payment providers must assess various factors, including legitimacy, reputation, history, and connection to known merchant offenders. Once bad merchants are in their system, many immediately engage in illicit transactions to maximize profits before discovery. Within a matter of days, a payment processor could face significant penalties.
To help mitigate these penalties and risks while not slowing down merchant onboarding, payment providers need a way to:
- Analyze billions of data points quickly
- Ensure they have an accurate understanding of the merchants’ business and history
- Pull from a diverse set of trusted data sources
- Identify sometimes subtle risk signals and patterns
Most payments providers find it necessary to rely on advanced fintech tools to complete a detailed analysis quickly and accurately, so they’re in a position to stop bad merchants before they begin.
- Use AI to magnify merchant risk visibility
Advanced fintech risk solutions with artificial intelligence (AI) provide comprehensive visibility into a merchant’s risk profile. This enables payment companies to make quicker, more accurate decisions during onboarding and stop bad merchants before they start processing. For example, a merchant may have a high transaction volume, but the merchant’s disclosed website has no, or very low website traffic, which can indicate that the merchant is processing illegal payments for another website undisclosed to the payment processor.
- Apply human wisdom and experience
Despite all of technology’s incredible and growing capabilities, it can’t do the job alone. There’s an important middle ground for payment providers to occupy−weeding out bad actors without alienating legitimate businesses. This involves the expertise of human analysts to investigate grey areas and apply judgment.
A complete reliance on technology produces too many false positives that may result in lost revenue. Artificial and human intelligence must work in tandem to strike the right balance.
Building risk resilience
In a time where both the market and merchant expectations are increasing the pressure on payment providers, there’s a serious need for sophisticated real-time risk management with a multi-step safeguarded process. Those who make the most of intelligent fintech are better equipped to manage today’s risks, and agile enough to navigate the uncertainties of tomorrow’s digital landscape.
By integrating AI-powered tools into their risk management strategies, payment providers can effectively manage risk in real-time amid a crowded (and sometimes dangerous) marketplace. Those who can guard against bad merchants, ensure compliance with global regulations, and utilize actionable insights will thrive and grow in the fast-moving e-commerce environment.
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Mary Williams, Vice President, Product Management G2 Risk Solutions
Mary Williams is the vice president of product management for G2 Risk Solutions, a global leader in risk and compliance business intelligence for financial institutions and online platforms. There, she focuses on operational excellence and scaling solutions for G2RS’ Merchant and Digital Commerce Risk solutions. With more than 10 years of product management leadership, Mary has built and scaled high-performing teams and products across startups and large software companies. At Amazon, she led and scaled new machine learning-driven solutions to protect brands’ intellectual property, combat counterfeit products, and reduce abuse. She also held key positions at two compliance startups, guiding the development of essential products and significantly driving the companies' growth.
