Are you running an online business that accepts payments? If so, payment facilitation has risks, including credit risk, account takeovers, and payment fraud. In 2021, businesses lost an estimated $32.9 billion to payment fraud, according to Statista.
Your business doesn’t have to suffer from such risk. Following best practices helps protect your business from fraud, chargebacks, and other threats. In this article, you’ll discover top risk management best practices for online businesses:
- Consider PayFac-as-a-Service (PFaaS)
PayFac-as-a-Service allows you to outsource payment processing to a third-party provider, avoiding the hassle and expense of managing your infrastructure.
It can also be a valuable tool for risk management in payment facilitation. PFaaS providers typically have robust fraud detection and prevention systems. They also handle all compliance requirements associated with payment processing, helping you avoid liabilities, costly fines, and penalties while reducing financial losses. Request detailed reports on your payment processing activity to identify and mitigate risks early.
- Establish Robust KYC
Know Your Customer (KYC) procedures form the backbone of a sound risk management strategy for any payment facilitator. With these processes, you can thoroughly vet prospective merchants and their legitimacy and credibility.
Stringent KYC processes can verify their identities, business models, and compliance with regulations. This screening helps identify potential risks and prevents onboarding fraudulent or high-risk merchants.
- Monitor Transactional Data Regularly
Chargebacks can lead to financial losses and damage to your reputation. Mitigate these risks by ensuring merchants adhere to the best customer service and product quality practices. These include providing excellent customer service, resolving issues quickly and fairly, and ensuring their products meet customer expectations.
It’s also important to communicate your chargeback policies to your merchants. This includes explaining a refund, how it can happen, and its consequences. You should also provide your merchants with the necessary support to handle customer disputes efficiently. It includes providing them with templates for responding to chargeback requests and training on collecting evidence to support their case.
These steps can mitigate chargeback risks that damage your business finances and reputation.
- Mitigate Chargeback Risks
Chargebacks can lead to financial losses and damage to your reputation. Mitigate these risks by ensuring merchants adhere to the best customer service and product quality practices. These include providing excellent customer service, resolving issues quickly and fairly, and ensuring their products meet customer expectations.
It’s also important to communicate your chargeback policies to your merchants. This includes explaining a refund, how it can happen, and its consequences. You should also provide your merchants the necessary support to handle customer disputes efficiently. It includes providing them with templates for responding to chargeback requests and training on collecting evidence to support their case.
These steps can mitigate chargeback risks that damage your business finances and reputation.
- Maintain Adequate Reserves
Reserves are a financial cushion that you can use to cover unexpected losses or liabilities like lawsuits, natural disasters, product recalls, or fund future growth or expansion.
But how many reserves does your business need? That will vary depending on factors, but it all boils down to the losses incurred.
For example, if your business sells products prone to recalls, you’ll need a larger reserve than a business selling services. Or, if your company has more transactions, you’ll also need a larger reserve. That’s because the higher the risk and volume of your business, the larger the losses can be.
- Regularly Update Security Protocols
The digital landscape constantly evolves, with it, the threats to businesses’ sensitive payment information.
To protect your business, maintain robust security protocols, including strong data encryption, multi-factor authentication, and regular security audits.
You should also stay informed about the latest security threats and industry best practices so that you can adapt your security measures accordingly. By following these tips, you can help to protect sensitive payment information and keep your business safe.
- Ensure Compliance With Industry Regulations
Compliance with relevant industry regulations is non-negotiable. Thus, you must keep abreast of payment card industry standards, anti-money laundering (AML) regulations, and data protection laws. Not complying with such can lead to severe penalties, legal repercussions, and damage to your reputation.
Collaborating with compliance experts to establish robust procedures and ensure adherence to all regulatory requirements may be best.
Manage Your Risks
By following these best practices, you can safeguard your business, build lasting relationships with your merchants, and establish a reputation for reliability and security.
Remember, efficient risk management is a journey, not a destination. That’s why you must continuously assess and refine your strategies to stay ahead in the dynamic payment facilitation landscape. Start your risk management odyssey today and watch your business flourish like never before.