Worldwide, fraud caused $24.26 billion in losses in 2018. And in the U.S. in 2023, card-not-present transactions are expected to make up 73% of all losses to credit card fraud.
And while this is certainly an alarming statistic for consumers, it’s also concerning for payment processing companies.
Payments companies are constantly exposed to financial risk as a result of fraudulent payments, bankrupt merchants, high numbers of chargebacks, and more. And without real-time analytics, your payments company is essentially flying blind after the underwriting process—leaving it vulnerable to a range of risks that could significantly impact its bottom line.
Fortunately, with the right monitoring tools in place, payments companies can protect themselves from these risks while simultaneously building better relationships with their SMB clients.
By monitoring customers’ financial activity and usage patterns, your business can actively monitor its risk levels.
What Is Financial Risk Monitoring and How Does It Work for a Payments Company?
No curveballs here: this type of risk monitoring is exactly what it sounds like. Using real-time analytics, your business can closely monitor your customers’ financial data to identify potential instances of fraud or other financial risks. By keeping a close eye on customer behavior, your payments company can quickly detect irregularities or suspicious activity, which can help prevent losses and protect your business from potential legal and regulatory consequences.
Think about your underwriting process. Whether it’s manual or automated, your fintech is pulling and analyzing financial data from dozens of different sources to determine whether the company applying presents a tolerable amount of risk.
When you invest in the ongoing monitoring of a client’s potential risk, you’re dialed into those data sources 24/7.
As a result, your business is better able to protect itself because it can keep on top of how its clients are doing without needing to request and wait for paper versions of financial statements.
How Your Fintech Benefits from Ongoing Monitoring of Its Customers
You’re probably not surprised to hear that data helps businesses make better decisions—to the tune of 3X, according to PwC. So, when it comes to managing risk, here’s exactly how keeping an eye on customers’ financials helps.
1. Spot changes in clients’ financial risk profiles
Your rockstar underwriting team just approved a new e-commerce client. The client gets up and running with your software quickly, and everything is going well—until it isn’t.
Fast-forward six months, and the e-commerce merchant’s clients begin filing chargebacks. Turns out, customers are paying hundreds of dollars on merchandise order they aren’t receiving.
Eventually, the merchant declares bankruptcy and your credit risk nightmares come true.
If you aren’t keeping a close enough eye on your clients, this situation could spell disaster for your company, with you left on the hook to refund hundreds of thousands of dollars to the merchant’s customers.
But, if your business is dialed in to the state of each of your clients’ finances, the story would end much differently.
With access to all sources of the e-commerce merchant’s financial data, its journey to bankruptcy wouldn’t sneak up on you. Seeing the company’s whole financial picture in real-time enables you to get ahead of the problem—you’d know exactly when a client becomes too risky and could end your business relationship before it puts your own company in danger.
2. Pivot quickly if your risk appetite changes
Let’s say one of your larger merchants does file for bankruptcy, leaving you with a big bill to pay out to its customers. You’ll want to make sure something similar isn’t going to happen to one of your other merchants any time soon. Your idea of a risky client has changed.
Time to reassess all of the merchants in your portfolio.
With a fully manual process, such a review isn’t a quick project. It may take weeks or even months before you can rest assured that you’re working with an acceptable amount of risk.
Automation, though, is basically a superpower for your business.
With a digital solution in place to monitor those merchants’ financials, risk assessment (or re-assessment, as it were), could be completed in just a couple of minutes per merchant. And if you were to find some of your other clients to be riskier than you’d like, you’re empowered to take your next steps quicker.
Choosing the Right Insights Software for Business Risk Management
Getting ahead of credit risk might sound like a dream, but it’s completely achievable. You just need to find the right software to enable it.
Boss Insights simplifies risk assessment and risk management for payments companies like yours.
With a single API, your merchants can connect all of their financial software to both speed up the underwriting process and allow you to keep an eye on the status of their financial accounts—accounting, commerce, payroll, and more—all in one place. That 300% data-driven improvement in decision-making doesn’t have to be limited to your own risk mitigation. Your merchants can leverage the same insights to help them scale their businesses, too.
Interested to find out more about how merchant data and insights can help your fintech? Fill out the form below to get started.