In merchant services, balance is important between underwriting and risk teams. If left unchecked, these two teams can work against each other, making the other’s job harder than it should be.
Each of these teams has clear yet different roles:
Assess whether applicants adhere to bank, card brand, and regulatory rules. In a nutshell, they are trying weed out fraudsters, money-launderers, and businesses that would pose a financial risk to the institutions processing their payment transactions.
Monitors transactions processed after they are boarded. Are they processing transactions outside acceptable parameters? Does the activity make sense given the business type? Is the activity indicating the institution processing those transactions could be at risk, financially or otherwise?
In an ideal world, balance exists between these two teams.
For example, if an underwriting team is heavy-handed and turning away anything that is even a tad bit risky but has the potential to be monitored and managed with a good risk program, we’re 1) not letting the risk team do their jobs and 2) turning away business we could likely take. A real morale and profit- buster.
If the underwriting team is not turning away business that they should, we are over-taxing the risk team’s resources and setting them up for failure. We can expect that we will lose most of these merchants, and we’ll probably incur financials losses.
Why bother boarding them in the first place? Again, not the kind of things risk teams usually get excited about.
Hopefully, now we can see why balance within and between these two teams is critical to both operating well. The balancing act is ongoing… this is something that should be constantly monitored and tweaked.
Have you ever submitted a high volume, low risk deal to underwriting, only to have it declined due to weak financials? Here’s what you need to know before you spend