Smarter Merchant Monitoring with Dynamic Risk Assessment

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Acquiring banks often face the challenge of balancing merchant satisfaction with risk management. On one hand, they aim to keep merchants happy by enabling quick payouts. On the other, they must protect themselves from financial losses if a merchant's risk profile unexpectedly shifts. Dynamic risk assessment plays a crucial role in safeguarding acquirers while supporting businesses with the liquidity they need to operate smoothly.

Here’s how Feedzai’s Dynamic Risk Assessment, available as an add-on to its Merchant Monitoring solution, helps acquirers mitigate risk while ensuring merchants maintain access to vital cash flow.

The Cash Flow Challenge for Merchants

Cash flow is essential for merchants, especially small businesses, to sustain operations. Access to funds allows merchants to replenish inventory, pay employees, settle utility bills, and maintain vendor relationships.

However, studies reveal that nearly 75% of merchants frequently experience delayed payouts. Without timely access to their earnings, many businesses face severe cash shortages, threatening their survival.

To address this issue, some acquirers are adopting same-day payouts for merchants in good standing. In markets like Australia and Brazil, payouts are even offered intra-day or on-demand. While these measures benefit merchants, they also increase financial exposure for acquirers if a merchant’s risk level is underestimated.

Current Merchant Risk Management Approaches

Acquirers typically employ several strategies to balance risk management and merchant needs. Each has its advantages and limitations:

Increased Merchant Deposit Requirements

Pros: Helps acquirers offset liability risks by requiring merchants to maintain larger reserves.

Cons: Reduces merchants' available cash flow, making it harder to cover operational expenses.

Faster Settlements for Merchants in Good Standing

Pros: Rewards merchants with a strong track record, offering quicker access to funds.

Cons: Excludes newer merchants who lack a year’s history, even if they meet other risk criteria.

Transaction Data Analysis

Pros: Provides insights into individual transaction risks.

Cons: Focuses on transaction-level data, often missing aggregated risk signals and relying on manual processes prone to human error.

To Know More, Read Full Article @ https://ai-techpark.com/smart-merchant-risk-strategies/

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