Technology holds tremendous potential to transform the payment space. The right kind of automation is the key to unlocking this potential. This is true regardless of whether your company is just starting to get into the payment space or an established firm that wants to grow the business, either by expanding the payments revenue stream or by becoming risk-bearing to retain a larger percentage of the revenue.
There are advantages for companies that can handle end-to-end payments. For one thing, becoming a payfac has the potential to increase your company’s revenue simply by increasing your wallet share for each client or merchant. You’ll get a bigger piece of the pie because you’re handing over less of the money to other parties. This has the highest revenue potential as you’re both handling payments and you’re accountable for the risk.
That sounds great in theory. In practice it's important to remember that there are two main parts to being a payfac. The first part is setting up the system to accept payments. There are challenges to doing this, including security, but the challenges are usually well-known and understood. The second part is actually boarding the merchants. This is where things start to get dicey.
Digital transformation drives time-to-revenue
Boarding merchants is obviously vital, whether you're just getting into the space or you're looking to expand or become risk-bearing. Historically, this process has been very slow.
In the traditional process, your salesforce signs up merchants and collects all of the information needed to make the decision on whether or not to do business with that merchant.
All of this data needs to be examined very closely. Numerous checks must be conducted to ensure that the merchant is who they say they are, that they're unlikely to commit fraud, and so on. These checks must be extremely thorough for any payfac, as you’re taking on the risk yourself.
This is where the process slows down. Those checks take time. Your underwriters have to examine each case individually and come to a decision based on the available information.
It doesn't help that very often the information your staff receives may as well be paper-based. It may be in the form of an email or a pdf, but it's usually not in a structured format. That means all the data must be entered manually. This is guaranteed to slow things down.
However, it's the next stage in the process that is likely to cause the biggest delays. Your staff must take all this information, go to the various different vendors used for background checks, and key in all of the data by hand. Then they have to wait for the check to go through. This can take anywhere between two and 15 minutes. The process must be repeated for every single check. Depending on the type of business, there could be dozens of individual checks that must be repeated for every merchant. Regardless of the time spent, gathering this Know Your Client (KYC) data is essential to protecting your business.
The faster you can make this process, the more merchants you can board in a shorter period of time, and the more revenue you can make in a given period. However, there's another side to this. Cutting corners will inevitably come back to bite you. As with all manual processes, human error can occur and lead to an unscrupulous merchant falling through the cracks. This can turn out to be very expensive for your firm. Remember, “risk-bearing” is exactly what it sounds like. You’re bearing the risk. An unscrupulous or fraudulent merchant can end up costing you severely.
Areas of focus vs time wasted
Frankly, it's not going to be much fun even if your firm isn't actually covering the risk personally. Whoever is providing that risk coverage is likely to raise your rates. If it happens enough, they'll stop doing business with you. In addition, your reputation will suffer. You may start to lose other merchants who don't want to be associated with fraudsters.
The traditional method to avoid this is the one we outlined above: a highly-qualified person, typically a professional underwriter, runs the necessary checks and then makes judgment calls based on the results. The problem with the traditional method is that there are a lot of situations where this is a huge waste of your underwriters' time and talents.
We'll be blunt. In many cases, once the appropriate checks have been completed, the 'very worst' and 'very best' decisions are easy to make.
Your underwriters need to focus on the grey area, the mushy middle, the situations where there are some red flags or question marks and their expertise is truly required. It's this grey area that will either spell success for your payfac efforts or doom it to failure.
Expand Abilities With Automated Underwriting Technology
The right technology effectively gives your underwriters superpowers, allowing them to focus like a laser beam on the situations that truly need their insight. That is why Merchant ScanXpress is designed to act as your Iron Man suit: it's an end-to-end solution that handles much of the work, while still alerting your experts as and when they’re needed. An automated underwriting tool like Merchant ScanXpress gives your underwriters the power to see further, do more, and make their decisions faster and with greater accuracy.
Merchant ScanXpress makes the most out of underwriter time and talent by performing all of the needed checks. Based on the results, the solution provides recommendations on automatic declines and automatic approvals based on your unique configurations and needs. With the time-intensive legwork already done, underwriters can follow the recommendations or interject and request more information from the merchant. Your underwriters are at liberty to override the decision if necessary. All of this process is logged in the automated audit trail.
As we noted earlier, the KYC data provided by the respective third party services is often sufficient to determine if an application should be approved or declined without human intervention. By automating this process, Merchant ScanXpress lets your underwriters concentrate on the decisions in the grey area, without wasting time with manual processes and checks.
The solution puts the power in your underwriters' hands, and in yours. You can configure the scoring and the checks used to evaluate clients to ensure that the process suits your company, rather than having to change your processes to suit the software.
Not only can you configure scoring to suit your needs, you can easily configure custom risk models for any of your merchant segments, with a full audit trail and complete control of your risk management within MINUTES of your time.
Contact us here for a demonstration of how Merchant ScanXpress can help you take your business to the level.