What are the 4 Pillars of Acquirer Risk?

February 28, 2024

Acquirers, like other players in the payments ecosystem, make money through facilitating transactions—the more risk, the larger the margin. But it isn’t always as simple as underwriting every Merchant, it’s more of a balancing act. And that balance can be guided by 4 areas of risk. Let’s unpack risk and what that means for Merchants…

What are the 4 Pillars of Acquirer Risk?

Acquirers follow strict guidelines set by regulating bodies and Card Associations. Like a Merchant, when an Acquirer breeches their compliance thresholds, they can be fined, see hikes in prices, or potentially lose relationships with Card Networks. Acquiring risk can be broken down into reputation, regulation, compliance, and litigation.

Reputation – Saving Face
Reputation is huge for every Acquiring bank. It’s what brings in new and recurring business, attracts top talent, and strengthens partnerships. And in the end, it’s what rules out certain Merchants as too risky. If a bank looks shady, then their bottom line starts to feel the burn.

Examples of reputational risk can be a Merchant’s brand integrity, previous misconduct, and media scrutiny.
Regulation – Staying in Line with the Law
High-risk industries, like gambling and controlled substances, will have trouble finding an Acquirer. That’s because Acquirers need to follow strict Know Your Customer and Anti-Money Laundering regulations, PCI guidelines, and adapt to ever-changing rules around data privacy, consumer protections, and resource allocation. Processing payments for something legally or morally gray can expose the Acquirer to fines and potential (and devastating) loss of Network relationships.
Compliance – Staying in Line with the Networks
Acquirers have strict compliance guidelines with the various Card Networks and regulating bodies. Fraud, chargebacks, and other disputes all take time, resources, and money to deal with. And too many of them can lead to a potential loss of partnerships and threatening fines. This is one reason that Merchants without a history of transaction volume, or who have a trend of growing disputes, can have trouble finding a Merchant account.

Examples of compliance risk can include high chargebacks, sanction violations, and poorly managed tax and accounting records.
Litigation – Saving Wallet
Lawsuits can be expensive, time consuming, and reputationally devastating for Acquiring Banks—just look at Silicon Valley Bank. Litigation risk bled into all the three other risks, and vise-versa.

What Does this Mean for Merchants

Risk is the reason getting underwritten for a Merchant account is difficult, time consuming, and expensive. And once underwritten, Merchants are then onboarded, which includes more agreements and training for fraud prevention, chargeback reduction, regulations, data security and more.

Barrier to entry might sound negative, but it can also be a net positive in the long run. Strict thresholds and enforced risk profiles can mean a safer payments ecosystem. They help remove bad actors, reduce fraud in the marketplace, promote safer transactions, and even reduces chargebacks.

How Can Acquirers Better Manage Their Risk Exposure?

Once a Merchant is onboarded, it can be only a matter of months until they start breeching compliance thresholds—especially with high-risk Merchants in a volatile industry. This is terrible for everyone involved. Merchants have to find a new Processor, which becomes harder and more expensive once dropped. And Processors lose their stream of recurring revenue.

That’s where Slyce360 comes in.

Slyce360 acts as a force multiplier for your underwriting department.

It runs behind the scenes, letting you easily track growing payment trends in your portfolio of Merchants. If Issues start becoming problems, Slyce360 drills into the root causes, and generates prescriptive action plans.

Learn more about Slyce360