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The Green Sheet Online Edition

December 08, 2008 • Issue 08:12:01

Preparing risk departments for the holidays

By Deana Sellens
Take Charge Business Consulting LLC

Editor's Note: This article was originally published in The Acquiring Mind, issue 6, Oct. 29, 2008; reprinted with permission. 2008 Take Charge Business Consulting LLC. All rights reserved.

Every year we hear risk departments are not allowing time off in December because the holidays are the "busy season" for risk. We have even heard people sighting higher fraud losses during the holidays. To date, no one has been able to produce numbers to show any of this to be true.

Time and time again we find this entire line of thinking to be wrong.

It is true there is a transaction spike for retail stores and some mail order business with product, but there are also a ton of businesses with lower or no volumes during the holidays. The actual number of accounts that require investigation is almost unaffected.

January and February are actually the busy times for losses. Unfortunately, many risk staffs are short at this time because processors tell their staff to take vacation in January instead of December. January and February are the months when businesses tend to fail due to lower than expected sales volume during the holidays. Refund volume then overtakes the business, and that's it.

It is critical, especially now, that you train your risk staff to watch for struggling businesses. Running credit reports and reviewing refund policies will be a key part in mitigating risk this year.

A thorough scrub of your portfolio should already be in process. It is important that you define all future service merchants now and begin re-underwriting those with significant volume.

Make sure you release statement messages and mailers to educate your merchants to clearly state refund policies on the credit card receipts. This would be a good year to push "no refunds/exchange only" policies. Inform merchants of the potential problems with no refund policy being in place.

Take time to train your risk team in underwriting. It is amazing how many risk monitoring teams have little or no training in underwriting. This antiquated way of thinking can be fatal to processors and ISOs. Research business credit reporting and test automated solutions to review your portfolio by volume and frequency benchmarks.

Bankruptcy is a serious concern this year, and first quarter 2009 will be a real test for some ISOs and processors.

Are you prepared? end of article

Deana Sellens specializes in operations, risk, compliance and project management consulting. She is a Partner in Take Charge Business Consulting LLC, as well as the current President of the International Association for Financial Crimes Investigators, Gulf Coast Chapter. Deana has a unique customer service oriented attitude toward risk and a proven track record in reducing bankruptcy and fraud losses. Contact her at dsellens@tcbconsultingonline.com.

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