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Payment Systems’ Mechanics: Navigating The Pitfalls

The payment ecosystem can be incredibly intricate and complex. All entities and intermediaries are interdependent of each other, each doing their part to bring the payment acceptance process to completion. Each player is a piece of the grand puzzle within the payment landscape.  

Within the payments’ environment are strict regulations and laws at local as well as global levels. Every major player must ensure that they stay up-to-date and in compliance in order to avoid exorbitant fines.  

The Regulations

Payment facilitators are under a lot of pressure as they must be willing to take on a significant amount of liability. They are ultimately responsible for all actions carried out by their sub-merchants. Card scheme operating regulations must also be strictly adhered to.

Here are a few rules that payment facilitators must follow. However, adequately tracking and enforcing compliance may prove problematic:

  • Illegal Or Restricted Businesses And Products

Acquirers have a list of products and services they refuse to serve. The standard categories include counterfeit or stolen products, debt collection services, gambling, fireworks, and adult products, just to name a few.

The payment facilitator must keep a close eye on their sub-merchant portfolio as well as the enforcement of compliance. 

Failure to adhere to compliance does not only mean heavy fines, but “regulatory enforcement actions”, civil liabilities, and even criminal charges. 

  • Payment Card Industry Data Security Standard

The PCI DSS is a card scheme mandate that requires entities that process, store, or transmit data to keep a minimum standard of security procedures. 

One way to manage risk is to reduce the contact that the sub-merchant can have with the cardholder’s sensitive information. However, this requires a thorough knowledge of the “flow of liability” from the acquirer to the payment facilitator, and finally, the sub-merchant. 

  • Anti-Money Laundering Compliance

All card schemes require that their acquiring partners have Anti-Money Laundering schemes in place. This is passed down to both payment facilitators and third-party agents by “contractual obligation”. 

Payment facilitators must trust that the sub-merchant they serve is actually who they claim to be. The key is to perform “Know Your Customer” and OFAC checks.

Potential For Abuse

Navigating the complex payment landscape is only the tip of the iceberg. Unfortunately,  bad players abuse the system, complicating things for both the merchant and the payment facilitator. These are just some things to watch out for:

1.  Neglecting To Provide Critical Information About Payment Systems Fines

Acquirers sometimes conceal information on fines imposed after there are violations of specific rules. Unfortunately, both the merchant and the payment facilitator have little recourse to prove that the violation actually occurred or if the fine was fair.

2.  Limiting Rights To Dispute For Merchants and Payment Facilitators

When a chargeback occurs and all proper documentation is submitted to the acquirer for “claiming the representment”, the chargeback can still be withheld from the merchant’s refund. 

It is essential that both merchants and payment facilitators become familiarized with all the rights and obligations of all parties involved within the acquiring agreement.

3.  Enforcing A Paid Audit To Mitigate Risks

Acquirers will implement this “forced measure” of performing audits and use the excuse that they are dealing with high-risk merchants.  Unfortunately, the merchant has to endure unreasonable expenses.

In order to avert this abuse, merchants must be vigilant and only seek reputable acquirer banks. As always, they must be extremely thorough in reading the contract, to make sure the agreement is perfectly clear. 

Be Proactive

Taking part in the payment space as a merchant or a payment facilitator can truly be daunting. But the key is to look out for any shady practices that can be hiding in plain sight, as outlined in the contract. Get legal advice and ensure that the agreement is one that is beneficial for both parties.