Based on analysis of the payment facilitator model, payments consultant Todd Ablowitz is arguing that payment facilitators need to take on liability a lot more often than they might think.
“Taking the risk as a PF is a choice. Do I take the liability or let the acquirer take the liability?” Ablowitz said during the keynote at PF day last week. “It doesn’t have a dial. You can have a dial on fraud and you can have a dial on credit, but you can’t have a dial on how much risk tolerance you have for regulatory. You always have to be on point there. (If you don’t), your acquirer will beat you up, the regulators will drag you through the mud and take you to court. You don’t want it.”
Because of the model, a partner—be they acquirer or a super ISO or something else—may want to avoid the liability.
“So I’m a (PF) and let’s say I’m making 2.6 percent net revenue and and let’s say that equates to 2 percent bottom line. You can make a logical argument that if I’ve got one new merchant that has less than a two percent chance of going under or causing me losses, I should take a risk on them,” he argued. He then pointed out that it’s rare that a merchant could have more than a 15 basis point chargeback rate without causing consumer harm – thus causing unacceptable regulatory risk.
“The PF says, ‘I want my merchant to get approved’ and their upstream says ‘I don’t want that merchant. It’s too high risk!'” If the upstream is only making 30 or 40 basis points and they are asked to approve a merchant that exposes them to 15 basis points of risk, versus their normal risk tolerance of 1 or 2, they just won’t agree. “Therefore,” Ablowitz said, “There is an economic argument for why” the PF should assume the liability.