Risk Management

What is Risk Management?

Alexy views Risk Management as one of the most important operating function in organizations such as:

- Healthcare
- Insurance
- Law Enforcement
- Government Agencies

It also applies to any business in process of applying for a Merchant Account as it can delay, or worse, decline your approval.

There are two types of Clearing Risk under Risk Management: Credit Risk and Fraud Risk.

What is Credit Risk?

This term refers to the risk that a borrower will fail to make payments on a debt which leads to lost interest, collection costs, and disruption to cash flow to the lender.

An example is a consumer failing to make a payment on a credit card, mortgage loan or any other loan. For merchants, the lender assesses if your business is financially stable.

Credit risk occurs when a merchant becomes insolvent which then results in inability to pay processing fees, charge-backs, or returns.

To reduce credit risk, the lender may perform a credit check on the borrower along with having a higher interest rate for the debtor. 

What is Fraud Risk?

Fraud risk occurs when a merchant creates charges on stolen/fraudulent cards or creates charges for goods/services that are either not delivered at all or falls under misleading advertisting.

When lenders asses fraud risk, they do not rely exclusively on monitoring excessive chargeback activity. Instead, multiple parameters are used in detecting fraud such as:

- Daily sales volume
- Average sales size
- Multiple purchases of the same dollar amount
- Multiple use of the same cardholder number
- Percentage of transactions keyed vs. percentage swiped
- Charge-back activity

Via manual underwriting, both Credit and Fraud Risk are managed to protect merchants from being defrauded in addition to protecting the lender from merchants conducting poor business practices.