The untold story of ePayments: opportunities for merchant banks

When it comes to ePayment penetration, it’s easy to believe that China is well ahead of every other country in Asia. A high volume of mobile payments, puts China well ahead of Japan, where cash makes up 80% of consumer spend.

However, a closer look reveals that this is only true if we consider account retail (B2C) and consumer (C2C) spending, which is actually only a small segment of the payment value chain.

Seeing the bigger picture: Cash share in Asia Pacific

The latest Global Cash Index™ by, reveals things aren’t quite as they seem. In reality, Japan spends only 4.2% of their entire GDP in cash. The same figure for China is an enormous eight times higher at 33.9%.

Cash is still king in China.

To understand this counterintuitive statistic, we need to analyse the entire payment value chain. As an example, let’s take a look at how fresh produce move from the farm to the consumer’s shopping basket in both countries.

We can see that China’s high mobile payment volume takes place largely in the final stage of the transaction value chain, where consumers purchase goods from retailers (52% of WeChat users conduct less than 20% of their monthly transactions in cash1). This means China has a huge opportunity to support and drive ePayment penetration for the rest of the value chain, before the retailer-consumer segment.

A look at the same value chain for Japan shows the complete opposite.

Here, the final stage is the only one in which we see cash spend. The good news for Japan is that enabling ePayments for consumers is a little more straightforward in comparison to the rest of the value chain. For these parties, banks need to build capacity, expand acceptance points and push for low-cost acceptance solutions such as mobile payments.

Supporting ePayments across the entire payment value chain

This analysis shows just how important it is to consider the entire payment value chain when looking at ePayment penetration. Though transactions between consumers and retailers are very significant, they represent only a portion of total exchange and transfer of money in trade. There is still a huge opportunity for banks and payment networks to electronify the payments value chain. Identifying who are the merchants of tomorrow is the first step to unlock these new opportunities.

Banks will need to re-examine and calibrate their overarching payment strategies, build the necessary capacity and infrastructure, and be willingly to disrupt themselves or risk being disrupted by technology companies.

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06 Nov / 2017

Preparing for the merchants of tomorrow

Tomorrow’s merchants may not be who you think they are. As the face of commerce continues to evolve from physical to virtual, the reality of what constitutes a ‘merchant’ is changing every day.

As apps and wearables replace traditional payment mechanisms, anybody with a bank account and a smart device can become a merchant, so a sharp increase in the overall number of operating merchants is inevitable.

If you’re a merchant acquirer, this means you’re likely to see a significant rise in your merchant applications and therefore, the size of your portfolio. To put this potential growth into perspective, if you’re usually accustomed to 500 applications and a portfolio of 10,000 merchants, you could soon be looking at as many as 25,000 applications and a portfolio size of one or two million.

Of course, incredible growth can bring with it some very nice benefits, but with so many merchants to manage, you’re also faced with a much greater exposure to risk. Simply maintaining the same tools, processes and personnel that currently protect your portfolio may not be enough to withstand the rapid increase in merchant volume.

So how can you protect your business and reap the rewards?

Equipping the right tools

For many acquirers, risk management solutions are only given serious consideration after fraud and regulatory action have occurred. In the worst cases, these acquirers have already suffered damages, making the financial and operational impact of implementing a fraud combat strategy extremely inconvenient.

By implementing a holistic merchant solution before fraud strikes, you can avoid this difficult situation, drastically reduce the chances of fraud occurrence and greatly mitigate its effects. Not only is this a smart, preventative measure, but with a more secure portfolio of merchants, you will also enjoy a significant lift to both margins and ROI.

By investing in risk management early, you can expect to:

Reduce the cost of merchant on-boarding 
With the right tools, you can streamline on-boarding checks for certain merchant categories, on the basis that the appropriate limits or ongoing monitoring checks are in place. 

Expand your merchant base
You will have the confidence to take on merchants with new and innovative business models, knowing that you have the oversight and control required to do so safely.

Be in control of your risk exposure 
Continuous monitoring of merchants’ web, social media and transactional behavior ensures that you’re quickly alerted of any changes to a merchant’s risk level. It allows for prompt implementation of mitigating action and protection from financial loss. 

Increase profitability of merchant base
Monitor merchant behavior post on-boarding and gradually increase transaction limits if no high risk flags are detected. Limits can be managed at a merchant, outlet or terminal level, allowing for differentiated limits depending on location or type. Seasonal limit increases can also be applied to accounts for spikes in holiday season sales.

To fully prepare for the merchants of tomorrow, acquirers must strongly consider how to manage an increased exposure to risk. By implementing an effective fraud combat solution early, you can enjoy the benefits of a large merchant portfolio whilst feeling confident that your business is protected.

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09 Oct / 2017

Top three risks associated with small eCommerce merchants

You need to be smart when acquiring merchants. Many acquirers do conduct extensive KYC checks, but merchant risk levels in the eCommerce space can fluctuate significantly after onboarding.

Fraudsters are known to develop websites that appear legitimate in order to pass through the initial KYC checks. Upon approval, these sites are replaced with high-risk product and service offerings.

Sometimes even with low risk goods bad merchant behaviour, such as bust out attacks (where heavily discounted deals amass huge sales before disappearing without delivering), can leave acquirers with significant chargeback losses.

Particular attention should be paid to the following three types of risks, which are most commonly associated with onboarding small eCommerce merchants.

1. Merchant Laundering

Transactions for illicit products and services being processed through approved merchant accounts. This enables the movement of funds from illegal activities, such as child pornography, gambling and unlicensed pharmaceuticals, into the financial system.

These activities can often go undetected, as merchants either obtain accounts under the pretense of a business or by working with a separate entity altogether. To avoid detection this entity may process legitimate transactions, as well and illegal ones.

2. Credit and Fraud Risk 

Bad merchant behaviour can expose acquirers to credit risk in the form chargebacks by dissatisfied customers.

Examples of this behaviour include, bust out attacks, the misrepresentation of goods, non-delivery of goods and the use of deceptive marketing practices.

3. Reputational Risk 

The constant churn of products, especially within online marketplaces, makes it hard to monitor for the sale of illicit items and transactions that could have a damaging impact on the reputation of an acquirer.

These products include unlicensed pharmaceuticals that fail to comply with basic pharmacy license, drug safety as well as patient safety laws and regulations. 

It’s key for acquirers to engage in the continuous monitoring of their merchant base, this will ensure you are constantly aware of any potential fraudulent activity and allow for mitigating actions to be taken.

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18 Sep / 2017