The U.S. regulatory environment continues to evolve in response to the growing number of nonbanks offering financial services. This time it’s state regulators – and their treatment of money service businesses – that are taking another step forward.
While payment facilitators are known for their ability to reduce friction and to quickly underwrite and onboard new merchants, not all merchants are created equal. Some require more due diligence and ongoing risk monitoring than others.
In the latest back-and-forth between federal regulators and their opponents over supervision of nonbank fintech companies, Acting Comptroller of the Currency Brian Brooks defended his agency’s efforts to develop a national regulatory scheme for fintech companies at a conference last week.
The Conference of State Bank Supervisors (CSBS) announced last week that it was launching what it called a “state-initiated” program that would enable money transmitters operating in 40 or more states to undergo a single exam to satisfy all state exam requirements in 2021.
For years, small merchants were underserved by the payments system. In recent years, more and more types of providers have arisen to bridge this gap.
But not all options are created equal when it comes to protecting merchants and the payments system overall. And this can have important implications for the businesses served.
Data security is a critical component of the work that payment facilitators do. Proper management of sensitive data is an essential responsibility for anyone enabling access to the payments system. So every payment facilitator needs to understand the role that PCI compliance plays in their overall risk management efforts.
Payment facilitators have a number of tools they can use to reduce their exposure to risk. To mitigate against credit risk, PFs will sometimes hold back funds from the submerchant – known as a reserve – to guard against possible future losses.
When are reserves typically used, and is now – as many businesses are experiencing financial hardship because of the coronavirus – a time to implement them?
The outbreak of a global pandemic is unlike anything the payments industry has previously encountered. But that doesn’t mean the resulting threats themselves are new – simply that the risk of encountering them is dramatically heightened.
The relationship payment facilitators have with their merchants is at the heart of what PFs do. Working with a payment facilitator makes acceptance simpler for merchants – especially for smaller businesses, for whom setting up individual merchant accounts can often be too cumbersome.
As the world reacts to health experts’ advice meant to avoid spreading the novel coronavirus, the need to pay for goods and services without making contact with others is driving a global shift to digital payments.
For banks, deciding to sponsor payment facilitators is a balance of risks and rewards. It allows them to expand and broaden their merchant base. It also provides additional revenue from their transaction fees.
But enabling access to the payments system is not a function to be taken lightly.
While becoming a payment facilitator can create new revenue streams for many businesses, it carries a risk of losses as well. One type of risk a PF must address is the potential for losses from chargebacks.
The CSBS has launched new fintech tools to enable a more manageable navigation process when it comes to promoting compliance and protecting customer data, including a portal, interactive map and updated resource center