Keys to Effective Merchant Monitoring

To be as effective as possible, merchant acquirers must continually monitor the risk posed by the merchants they have underwritten. The basic process of merchant underwriting involves two parties: the merchant and the merchant acquirer. In this process, payments go from the consumer to the acquirer who then pays the merchant. To be as effective as possible, merchant acquirers must continually monitor the merchants with whom they have chosen to do business. They must monitor risk because in the time between the customer paying for their goods and actually receiving their goods, the acquirer holds the risk of returning the money to the consumer if a chargeback occurs. Three main areas acquirers must pay attention to are: risk, account activity, and channels of communication.

Risk must be monitored and calculated while the acquirer decides to underwrite a merchant. The acquirer must know how likely the merchant is to stay in business, as well as how likely the merchant is to repay funds if they suddenly cannot deliver goods they have sold. The acquirer, while not directly loaning money, is implicitly taking on the risk associated with chargebacks if the merchant does not deliver goods to the consumer and does not repay the money to the acquirer.

Merchants must be monitored after they are underwritten so the acquirer can detect abnormalities in the business that may affect their ability or willingness of the merchant to repay customers for chargebacks. This is important because acquirers undertake a certain amount of risk from the merchants that they underwrite. Without proper monitoring of merchant accounts, the acquirer will be unable to tell when unusual fluctuations in business occur and, in the worst case scenario, will only find out after the merchant has been unable to deliver goods, but kept the customers' money.

Effective means of communication must also be maintained so the acquirer can contact the business if any unusual occurrences arise. For example, if a small t-shirt company suddenly has a 40% increase in sales, the merchant acquirer may contact them to find out why there was such an influx and whether or not the business will be able to cope with the new additional volume. Additionally, if the acquirer has ongoing contact with the merchant, a relationship of knowledge and trust will be established. This means that if an unusual circumstance does arise, the merchant will already be comfortable contacting the acquirer.

When underwriting merchants, acquirers must look at the risk posed in every step of the relationship. This risk mainly stems from the possibility of chargebacks and the ability of the merchant to deliver goods as promised. When monitored effectively, merchant acquirers not only provide a valuable service to merchants, and merchants have the benefit of having a strategic vendor looking out for their best interest.