In my introductory column in last month's issue of Transaction World Magazine I talked about the "common ground" we all share in the merchant acquiring business. Our industry has everything you want in a business: leverage, growing recurring revenue, a national market and a service that most businesses need. Many say it's also expanding in the areas of total credit card processing volume and number of merchants. However, there is one big problem. A lot of criminals have figured out how to make huge amounts of money quickly�and fraudulently. Most times, it is the acquirer that's stuck footing the bill. As such, one of the most important issues that comes up in discussion is fraud and how to manage merchant credit losses.
There are two major types of merchant credit losses. One is fraud credit losses perpetrated by criminals. The other is credit risk losses caused by uncollectible fees and chargebacks originating from legitimate merchants. Credit risk losses happen when a legitimate merchant does not have money in his or her account to cover a $1,000 chargeback that's coming through their account, or when there is not enough money in the account to cover month-end fees.
No matter which category losses fall into, controlling merchant credit losses and combating fraud are major acquiring industry concerns. The criminals don't think we're smart enough to get together and share information to stop them...and that will be their undoing. They do not realize that risk management groups are communicating with each other every day via telephone and email.
Resources available to ISOs to fight fraud and lessen merchant credit losses include:
The IAFCI (International Association of Financial Crimes Investigators) is a national organization that covers all types of fraud including check fraud, bank fraud, identity theft, secret service investigations and merchant bankcard fraud. We send our risk management managers and directors to their conference every year.
At one of these IAFCI conferences, a group of merchant bankcard risk management executives got together and came up with an idea that resulted in the formation of the MAC Users Group. MAC is a nationwide organization of bankcard professionals involved in the risk management side of credit card processing. Its membership boasts people from acquiring banks, gateway providers, ISOs, MSPs, processors and card associations. Broken into three geographic regions, this group's goal is to provide increased cooperation and communication as well as universal risk management solutions. MAC gives the acquiring side of our industry the opportunity to voice common concerns and opportunities to the card associations as well. Covered in monthly meetings are risk trends in the industry and the latest information from
the card associations. In the pursuit of prosecution of fraudsters, MAC communicates with law enforcement agencies, the FBI and the Secret Service. An important initiative introduced by MAC, which is widely adopted, is to identify a credit inquiry as a bankcard acquirer with ACQ at the end of the name. The reason this initiative is so valuable in the fight against fraud is that it raises a red flag when a particular merchant starts applying for merchant accounts all around town.
One of the newest weapons in the battle against fraud is the recently formed Credit-Card Fraud Investigators Association. There is no membership fee for this association. It is open to both issuing and acquiring fraud investigators. Currently, the Credit-Card Fraud Investigators Association has 58 acquiring members and 19 from the issuing side. Their mission is to provide a confidential and secure forum for the exchange of ideas and information, as well as improving our collective efforts in combating fraud. It gives members the ability to check to see if any other members have had problems with a specific merchant. Additionally, the Association also gives members the ability to report any confirmed fraudulent merchants or activity to other Association members.
Personally, I sleep much better at night knowing these organizations exist and that our key risk management personnel contribute and utilize all of these resources. I am also particularly impressed with the attitude of risk management personnel in our industry. These people understand that the need to protect ourselves against fraudulent merchants is a financially critical issue. As a result, they put aside the fact we're competing in the same business, and sometimes for the same merchants, and cooperatively work together.
Hand-in-hand with merchant losses is the "common ground" concern of bad sales reps. Although we all realize it's not a great idea to share information on good sales reps, one bad sales rep can damage many companies and the entire industry. In the same way that risk management groups have come together, the professionals responsible for recruiting and training new sales reps for ISOs and MSPs need to create a forum where information and experiences can be shared. To do so, we will need a strong and savvy group of ISOs and MSPs as well as a good group of point-of-sale leasing company providers.