Risk management for ecommerce merchants has never been more important, particularly when it comes to how they process their payments. 

When you adopt a comprehensive strategy that detects, evaluates, and mitigates the effects of events such as data breaches, fraud, chargebacks, and regulatory noncompliance (among others), you can protect both your business and the interests of your valued customers.

Common ecommerce payment risks.

Purchasing goods and services online offers convenience and access to the global marketplace. However, this technology brings with it a number of significant risks that must be directly addressed in order to minimize their consequences. 

They fall into several major categories.

The most frequently seen type of ecommerce payment risk comes in the form of fraud. There are various major types: identity theft, phishing threats, account takeover, data breaches, social engineering, and card-not-present transactions.

Chargebacks also can profoundly affect a business’s bottom line and damage its reputation. They occur when customers dispute transactions and request refunds from their credit card company without first attempting to resolve the situation with the seller.

Another kind of risk happens when equipment or technology fails to operate properly. This can result in disgruntled customers, delays, revenue loss, and, in the worst-case scenario, long-lasting business interruptions.

Companies can also get in trouble if they fail to comply with mandatory regulations such as the Payment Card Industry Data Security Standard (PCI DSS) that protects cardholder data, and the Payment Services Directive (PSD2) which sets the standards for customer authentication. 

Falling short of meeting these requirements could mean significant penalties, as well as a hit to your brand’s reputation.

Compliance also must extend to the third-party companies that partner with an organization. If the practices or compliance structures of your vendors are faulty, the consequences could reflect badly on you.

The elements of effective payment processing risk management.

Identifying and addressing the various types of payment risks involves mounting a complex strategy. This multi-pronged approach will help to ensure that your organization is protected throughout all of its structures and relationships.

Before all else, your first job is to partner with the right provider. 

Depending on the industry in which you operate, your credit score, and your history, this might mean establishing an alliance with a high-risk payment processor that is particularly suited to helping businesses like yours to navigate the complex regulatory, security, and customer service landscape in which you operate. 

Although you can expect to pay higher transaction and contractual fees and may undergo additional scrutiny when applying, cementing a strong connection with a high-risk processor can serve as one of your greatest bulwarks against fraud, chargebacks, and other types of payment processing risk.

Automated advanced anti-fraud technologies are another indispensable tool. These systems can analyze large data sets with accuracy and efficiency, recognizing patterns and making recommendations that you can act upon, often before a transaction goes through.

The systems provided by your payment processor can be configured to conduct analysis of data in real-time. This process uses current and historical data to instantly evaluate the risk level of each transaction.

Secure payment processing is impossible without tokenization and encryption, which protect data both when it is at rest and in transit. Tokenization involves replacing sensitive data with random strings of characters that are useless to hackers. 

With encryption, plain text is converted into an unreadable code called ciphertext that cannot be unscrambled without the proper decryption key. These masking practices provide strong shields that protect sensitive details at every stage of their interactions with your company.

Another source of risk for businesses occurs when unauthorized personnel gain access to your payment systems. Enacting strong authentication and permissions protocols helps to ensure that only essential stakeholders are given these privileges.

Additionally, complying with privacy and data security regulations represents the potential for great risk if a business falls short. Investing in systems that manage and automate regulatory compliance is vital in assisting with monitoring and reporting, thus reducing costs and decreasing the chances of non-compliance.

Another way to gauge risks is through predictive modeling. These systems use behavioral patterns, historical data, and intelligence about external threats to guess the likelihood of future fraud and other risks. Once you receive this information, you can immediately act upon it to gain proactive protection.

Risk analysis can be either quantitative or qualitative. In the former type, you assign numerical values to the assorted risk factors you face based on their potential impact and probability of occurring. 

On the other hand, qualitative risk analyzes less tangible elements such as a particular risk’s potential for causing reputational damage, interfering with customer trust, or leading to added regulatory scrutiny.

Most companies also combat payment processing risks by instituting strong internal data analysis practices. This involves taking a hard look at your historical data patterns that could signal higher fraud risks, such as abnormal transaction volumes, spikes in chargebacks, or anomalous customer behaviors. 

Pair this inward-facing examination with ongoing surveillance of the constantly evolving external security landscape to gain even more comprehensive protection.

In order to remain at the top of your payment processing risk management game, determine which metrics are the most important to your business, and measure them regularly. These should include key performance indicators (KPIs) such as chargeback ratios and fraud rates.

Tips for choosing technical risk management solutions.

Recent years have seen the advent of sophisticated automated schemes that can help to minimize payment processing risk. But just how should you go about choosing the systems that are right for your company?

Start by coming up with a list of the significant risks that your operation is most likely to face. Then focus on the solutions that address these needs while offering the ability to scale with your business’s growth. Keep cost-effectiveness in mind; most likely, you will not need all of the flashy bells and whistles.

In addition, be sure that the system you choose integrates smoothly with your current hardware and software. The solution’s benefits should outweigh its financial costs and be easy to both learn and use.

Of course, you will never succeed at totally eliminating payment processing risk. However, implementing these strategies can go a long way toward protecting your organization and the customers you serve from digital criminals, regulatory compliance failures, and other significant threats.