By Jeff Fortney
There is ongoing discussion about the degree to which the current economic upheaval will impact our industry. Will we see a downturn in card usage? Will average tickets decrease? Will merchants fail?
The answer to these questions is yes. And such events are projected to continue through the holiday season and into 2009.
However, since you, as ISOs and merchant level salespeople (MLSs), have no control over these events, consider placing your focus and energy on what you do have the ability to affect - with liability and risk topping that list.
During times like these, merchant fraud increases markedly. Processors and ISOs who are responsible for liability and risk have a greater worry than those that don't.
And instances in which merchants either intentionally or unintentionally process fraudulent transactions lead to true financial losses at a time when revenues are also down.
Even though MLSs don't have liability, incidences of fraud have a monetary impact on MLS revenues. A loss of one merchant out of thousands may have only a slight impact on income for a processor. However, the loss of one merchant out of one hundred could greatly affect both the return on and the value of an MLS's residuals.
Processors monitor transaction reporting daily in an attempt to identify and address transactions that may be at risk. They recognize the importance of constant, diligent monitoring. However, depending on the size of their portfolios, some transactions can fall through the cracks.
These transactions normally aren't large (by processors' standards) but could be a warning sign of a future issue. Remember, you know your merchants better than your processor. To protect your portfolio, and your income, do not depend totally on your processor to protect your revenue. You, too, should be actively monitoring your merchant and looking for any form of abnormality.
Merchant and portfolio reporting has been available for many years in various forms and has gained acceptance among larger merchants. And ISOs and MLSs have used access to these reports as an opportunity to sell an added service - and generate added revenue.
In most cases, reporting offers nothing more than the ability for merchants to track their deposits and review their month-end expenses. MLSs may have no online access to their merchants' information or even online access to their own residuals.
And the majority of MLSs who do have access to reporting merely take a cursory glance at overall volumes processed. They hope to quickly see any growth in their business reflected in their revenue numbers. They're not paying attention to signs of potential losses that could negatively and dramatically affect their earnings.
By spending five minutes a day, you can quickly spot merchants who are at risk and address the issues at hand before they cause you to lose your customers. This, however, assumes that you have reporting that will enable this.
To perform this review your online reporting must at least provide the following:
The best situation will also provide online reporting data that gives:
If you do not have this information available online, you will need the original merchant applications for your portfolio to develop baseline documents. This will require more time at the beginning and must be maintained as new merchants are added to your portfolio.
Without access to this data, your ability to quickly analyze your merchants is seriously compromised. And the likelihood that you won't find time to do this is high, which will seriously undermine your ability to run your business.
On the other hand, if you do have this data, you're positioned to perform a five-minute review. There are two parts to this: increased volume and loss of volume.
Increased volume: At a portfolio level, look for evidence of a volume spike - an increase in volume day over day. If seen, examine your merchant base volume, and look for merchants who are showing a significant increase above what would reasonably be expected.
Once identified, examine those merchants' most recent activity. Look for round-dollar tickets, large ticket sizes that exceed the merchants' average or any activity that seems abnormal for each merchant under scrutiny. This could include an increase in key-entered tickets or a shift in the way transactions are handled.
Contact identified merchants, and ask about abnormalities you have observed. There could be a simple explanation (like a large sale or a malfunctioning terminal). The merchant will appreciate your making the inquiry, and this will give you another reason to ask for referrals.
Loss of volume: Examine your portfolio for either a downturn or smaller than anticipated growth. This can be a sign of attrition or a sign of a more serious (but rare) fraud situation.
Examine your merchants' transaction volume, comparing day over day, looking for any downward spike. (This analysis works best when your online reporting offers portfolio analysis reporting.)
If identified, review the last batches for excessive returns or for zero batches - both of which can be signs of risky activity. Should these be identified, notify your processor immediately.
Otherwise, contact merchants whose volumes have decreased, and ask questions about their activities. They may have switched to other service providers, and this is your chance to regain their business.
A commitment of only five minutes daily to review your portfolio, identify at-risk merchants, and address their issues should become a staple of your daily routine. You work too hard to gain merchants' business.
A sliver of time spent protecting your clients and your portfolio is a small investment, but it can boost your business in what we know will be challenging times ahead.
Jeff Fortney is Director of Business Development with Clearent LLC. He has more than 12 years' experience in the payments industry. Contact him at firstname.lastname@example.org or 972-618-7340.
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