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Education

The pandemic era also introduced the need for regional normal, next-day timeline. However, on rare occasions,
awareness. Most U.S.-based processors have traditionally sales can reject before they clear, or the processor can miss
monitored risk based on Standard Industrial Classification, a clearing window.
not ZIP code, but with the wide variation in shutdown
measures between states, and even within a state between Another compromise an ISO makes when paying
metropolitan and rural areas, much insight is gained merchants funds more quickly is that the risk-review
by knowing the physical location of a business and the timeline is significantly shorter. It’s unlikely a risk manager
restrictions in place there. can perform a comprehensive review on a merchant that
is funded immediately at batch-out. Such a review would
Merchant Funding require active risk monitoring of real-time transactions,

The pandemic also spurred demand for a shorter timeline tools that currently are unavailable to most ISOs. All else
between card acceptance and merchant deposits. An being equal, the more time and data a risk manager has at
economic slowdown left cash-strapped businesses hand, the better the resulting risk decision.
wanting the few payments they did accept to hit their
bank accounts more quickly. Payment processors and High-risk and low-risk portfolio definitions have changed.
ISOs responded with offers of “instant” payments and This shift should encourage us to re-examine the ways we
“enhanced” next-day funding. define risk, but more importantly, the ways we monitor
it. Even if a deal is poorly underwritten based on invalid
What compromises are made when ISOs accelerate the risk assumptions, a solid risk monitoring program can
timeline between acceptance and merchant funding? It mitigate potential exposure.
depends, but it’s always more risky. If ISOs are paying
merchants before they’ve been funded by the card Elaina Smith is the CFO of Secure Bancard, a wholesale ISO based in
companies, there is an immediate, significant financial Alpharetta, Ga. Most recently, she helped develop and implement
risk. ISOs are using their own funds, or worse, expensive, Pioneer by Settlement Data Systems, an SaaS solution that enables
borrowed funds. ISOs also must assume these transactions ISOs to run their business more efficiently. She can be reached at elaina.
will clear with the card networks and be funded on the smith@securebancard.com.

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