Accepting payments is becoming increasingly simple for online businesses. With an array of acquirers and alternative payment methods available to choose from, online businesses are increasingly able to select providers with a focus on great service quality at a reasonable price. Nevertheless, processing payments is not risk-free and things can go wrong. Ensuring your business has a strong control framework to mitigate these risks is vital for long-term success.
In this article, we look at some of the top risks that online businesses face when accepting payments online and what you can do about them.
No online business can promise to be available 100% of the time, 365 days a year. This is true of your payment providers just as much as it is for your business. Technical challenges, either concerning a payment provider’s internal systems or even third-party systems, can cripple payment processing. If this happens, your payments may be queued for processing later than planned, or you might even see issues at your checkout which result in lower conversion rates. Although this shouldn’t happen frequently, the disruption to your business can be damaging both financially and for your reputation. Increasingly, online businesses are choosing to accept payments through multiple providers, which can help to mitigate this risk. 57% of merchants work with multiple acquirers, according to a recent survey by ACI, with 2-5 acquirer relationships being the norm. Having a secondary or tertiary acquirer gives your business a failover in case anything goes wrong during processing.
The global financial ecosystem is incredibly complex. When you factor in all of the processes involved in accepting payments (gateway, processing, clearing, settlement and so on), an issue with any one of these steps can cause your settlement to be delayed, either in part or in full. In the worst case scenario, your business might not get paid for at least a day. If you have suppliers to pay or customers to whom you distribute funds, the impact of this can be catastrophic.
There is one critical detective control that your business should leverage to mitigate this risk: payment reconciliations. At a very basic level, your business should be checking your bank accounts to make sure you’re paid as frequently as you expect - and in the right currencies. For more complex businesses with multiple payment providers, multiple legal entities and multiple bank accounts, this can become a highly manual task, leading to increased operational risk. We’re building a reconciliation platform that will help automate these tasks so you can automate these processes and reduce this operational risk.
Delayed settlement isn’t the only thing that can go wrong with your settlements. More often, your business will not receive the amount you’re expecting to receive from your payment provider. Firstly, how do you know what you should receive? Your internal records (e.g. data warehouse, ledger, other proprietary trading system) is a good place to start. On top of this, you should receive transaction-level reports from your payment provider detailing all of the transactions, fees and any other applicable debits or credits that make up your settlement. You’ll likely also receive an invoice or some other ‘audit-friendly’ report from the payment provider, as well as the settlement you receive into your bank account itself. There are a lot of moving parts here, which makes this complex even if you have a single payment provider. However, if you have multiple payment providers or you’re accepting hundreds or thousands of payments per day, this process can get even more burdensome
Top causes of payment reconciliation discrepancies include:
FX conversion mismatches
Timing delays at any point in the processing of a payment
Incorrect fee application
Incorrect processing amounts
Technical issues at one or more of the parties involved in payment processing.
A robust control framework is needed to ensure your settlements are received in full. Again, effective payment reconciliation controls here are vital. Whether manual or automated, Equali’s Payment Data Management product can help streamline your payment reconciliations through automated report extraction, data cleansing, data transformation and data enrichment. The complexity and time cost associated with manual payment reconciliations in particular can be very high, so streamlining this process is important to allow you to increase the frequency of your reconciliations whilst lowering time and financial costs.
Fraud is an unfortunate part of accepting payments and there could be huge ramifications for your business if you process a large number of fraudulent transactions. Ultimately, you might struggle to find a payment provider to work with and you may be forced to cease processing. Fortunately, there are a range of fraud detection engines available to online businesses, which makes reducing fraud risk straightforward. Such companies trawl through your payments to review anything that doesn't look right before you end up with a high number of chargebacks to deal with.
How Equali Helps
Equali can streamline your reconciliation process to reduce the impact of payment processing and settlement issues. To find out more about our Payment Data Management product and the reconciliation engine we’re building, schedule a call with our team using the link below.
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