Managing Automated Underwriting
Everyone can agree. It saves time and resources to onboard a merchant for payment processing using technologies that can quickly manage your customer identification requirements. But Visa asks a tremendously important question in their Global Risk Standards:
Does your acquiring program, including any applicable sponsored third-party agent(s), use a risk-based approach where only merchants within predetermined parameters (payment volume, average sales draft amount, Merchant Category Code, acceptance method, contingent liability, etc.) are auto-boarded, and any merchants falling outside of such parameters is traditionally underwritten?
How would your business answer that question? If your system automatically underwrites, what kind of controls do you have to determine when a merchant application falls out of the predetermined parameters? What parameters should be considered, and are yours tailored to your business requirements?
Automated merchant onboarding and underwriting can allow merchants to apply for and get approved for a merchant account online with little human intervention. A digital application will enable a merchant to complete an online application using prefilled information and innovative fields to reduce errors and manual input. The onboarding system can automatically gather information from various sources, such as public records, credit bureaus, or commercial databases, and verify the business and its key stakeholders.
Payment providers must complete these steps in near real time. One must know when a Tax ID has been incorrectly keyed and quickly identify obvious scammers, people or companies on the OFAC list, merchants on the terminated merchant file, fraudsters, and criminal organizations. This is becoming increasingly challenging. Fraudsters understand how humans behave, and it is becoming increasingly difficult to detect an anomaly.
The merchant may be allowed to submit documents for verification electronically, but necessary security protections must be implemented. This is vital when financial records must be shared confidentially.
The merchant may be able to e-sign documents and complete the remaining requirements by using a link emailed to them or through a portal within five minutes. All these steps make for fast onboarding, which is excellent. But what about the merchant that falls outside of the predetermined parameters? Allow these merchant applications to have a human assessment. Conduct a complete compliance and risk review. Consider retaining a reserve on the merchant. This parameter-driven approach will allow for most applications to be swiftly approved while protecting your company from unknowingly accepting higher-risk customers without proper consideration.
RPY Innovations can assist your organization in building business-specific rule sets, review processes, and risk and reserve calculators that will reduce risk in automated underwriting and aid manual evaluation, thus reducing errors and losses throughout the process. Contact RPY at hello@rpyin.com.