Understanding Risk Management in Payment Processing

As the methods of cashless transactions continue to escalate, the global payments landscape is quickly transitioning into full-fledged electronic payment models. Digital payments are now faster, more convenient, and more secure than ever before. However, the use of electronic channels to enhance payment processing is never possible without market-specific risks. Such risks as fraud, theft, and data breaches define the downside of payment processing.

This post defines the various risks involved in the payment gateways and how such risks can be mitigated.

Who Is Involved in Payment Processing?

Payment processing is a multi-tier procedure involving various participants. These players include;

  • Cardholder/Customer – This party applies for and receives a credit card for digital payments and transactions.
  • Merchant – The merchant is the business in need of expanding its payment channels through credit card processing. Every business must have a merchant account to accept credit card payments. If your enterprise is interested in receiving payments in different global currencies, then you will need a forex merchant account instead.
  • The Issuer – Also known as the issuing bank, the issuer is responsible for opening credit and debit accounts for interested parties. The opening of such accounts is accompanied by the issuance of credit and debit cards.
  • The Acquirer – Also known as the acquiring bank. This is the financial institution that provides payment gateways to businesses. The acquirer collects all payments directed to the merchant by disbursing the money to the respective merchant accounts.
  • Card Network – These are companies that facilitate card transactions. Card networks process and authorize payment transactions using information interchanged between issuers and acquirers.

What are the Main Risks Involved in Payment Processing?

Risks in payments relate to all the factors that create uncertainties or the impossibility of completing a transaction. The potential impact of such risks is evaluated based on the value of damages likely to be caused and the magnitude of disruptions in question. Understanding the structure of each type of involved risk is critical to developing efficient mitigation strategies. So, what are the typical risk types associated with the payments landscape? Read on for a quick outline.

  • Data Security Risk – This refers to any action that exposes the availability, integrity, and confidentiality of cardholder data. Lack of proper protection of such data not only damages customer loyalty and your brand image but also has a huge cost implication on your business. Data security risks take different forms, including hacking, data breaches, human error, and natural disasters.
  • Telemarketing Fraud Risk – Telemarketing fraud is an over-the-phone deception scheme through which criminals fraudulently lure victims into sharing their card and bank details. Consequently, the telemarketing criminals use this information to withdraw money, pay for expensive products and services and subscribe to unscrupulous activities.
  • Credit Risk – This is the risk of losing money resulting from the failure to meet contractual obligations by various merchant accounts.
  • Reputation Risk – Reputation risk refers to the potential damage associated with the failure of a payment gateway or processor to meet the customer’s expectations.
  • Compliance Risk – This is the exposure of a merchant account to penalties and extra charges for failure to oblige various regulations and legal requirements.

How to Avoid and Reduce the Risks

Payment risks are often linked to the time lag between payment finalization and settlement of transactions in specified merchant accounts. However, these risks can be attributed to other factors, including human error and inadequate security protocols and procedures. However, regardless of the contributing element, monitoring, assessing, and implementing risk mitigation strategies remain to be the ultimate goal of every organization.

Here is how you can mitigate and remediate payment risks.

  • Train Your Staff Regularly – A significant number of all data breaches originate from employee error. Employee training on data security ensures that everyone is well equipped to identify any unusual behavior. Additionally, with the rise of new hacking and fraud tactics, training empowers your staff to be proactive in confirming customer identities and spotting tampered cards.
  • Use a Proper Payment Gateway – Payment technologies are growing rapidly, and merchants must ensure they adopt payment gateways that are safe, secure, and reliable. One proper payment method is the Europay, MasterCard, and Visa (EMV) gateway, which has enhanced card security through embedded microchip technology. Interestingly, EMV compliance, a requirement for every business to use EMV cards, has become a global industry standard.
  • Ensure Information Security – As online purchases continue to grow, hackers are now targeting online transactions as the link to users’ bank accounts. To reduce your client’s exposure to such security breaches, businesses must adopt such services as the Address Verification Service (AVS). This system confirms whether the card issuer’s information matches the billing details before completing a transaction.
  • Beware of Uncommon Transactions – An uncommon transaction is any activity that is initiated outside the usual course of your business. This may be a transaction involving a very large amount of suspicious credit card payments. Uncommon payment activities are often a sign of possible fraud. Monitoring such transactions closely and confirming the user’s identity is crucial to card security.
  • Monitor Fraud Continuously – Continuous fraud monitoring solutions are considered a proactive way of avoiding and reducing the impact of potential risks. This is because risk assessment makes it easy for businesses to identify new exposures and prioritize high-risk activities for immediate remedying. Again, the dynamics of fraud associated with online transactions are always changing, and undertaking continuous monitoring ensures you remain relevant in risk management.


The inception of multiple payment methods remains leverage to any goal-oriented business. However, the introduction of new payment technologies will always be coupled with identifiable risks, such as credit, operational, reputation, and data security risks. The guiding principle is that you must stay upfront in minimizing these risks.