This article is excerpted from an article we originally published for Forbes. As risk managers and compliance teams consider budget allocation and investment for next year, this question often arises: Does it make more sense to purchase technology solutions for risk management, or should we make an attempt to build them ourselves? Read on to find out...
Since the COVID pandemic, digital payment methods have evolved at lightning speed, with global payments revenues reaching $2.1 trillion in 2021, based on the 2022 McKinsey Global Payments Report.
Many new non-traditional players continue to enter the global payments market to meet consumer demand for faster and more convenient payment methods. This has boosted existing competition between more traditional acquiring banks and payment service providers (PSPs). While there’s an enormous amount of revenue to be had by all those in the payments industry, they must fight for their share by rapidly growing their customer base or moving into new markets.
The boom in business, increased competition, and speed of change have all resulted in a major and unwelcome consequence – an equally rapid increase in financial crime. One of the most common methods utilized by criminal networks is transaction laundering.
Payment providers need effective solutions to manage merchant risk
To avoid the financial loss, negative media exposure, fines, penalties, and potential legal action that can occur when payment providers enable financial crime (even unknowingly) they must do their best to prevent online financial crime and prove their due diligence to regulators.
This type of due diligence requires smart, technology-based solutions that rely on rich, robust data to detect suspicious activity when onboarding new merchant customers and on a continuing basis.
To implement these types of proactive solutions, payment providers must decide whether to build their own solutions or to purchase them from a trusted third-party.
Is it better to build or buy?
While enterprise-level businesses may be inclined to build risk management solutions in-house, this is not something that should be taken lightly. Here are some important questions to ask before attempting to build a custom solution from the ground up.
- Will the solution be practical to build, implement, and manage?
- Will it offer the level of monitoring required bu your AUP, business needs, and risk based approach?
- Will the solution be flexible enough to meet changing requirements as your business scales?
- How about quality assurance? Will the solution offer reliable and qualitative outputs? How will you be able to tell?
- Does your organization have the resources (technology, budget, and staff) and expertise to build, maintain, and manage a home-grown solution?
Based on our expertise in the industry, it’s almost impossible for organizations – even large, global banks, marketplaces, and PSPs – to build an efficient, effective merchant risk management solution on their own.
Here’s why.
The value of data
The main reason in-house solutions are not effective is because the organizations that build them have limited data for comparison, which creates an endless feedback loop. Put simply, detecting suspicious activity requires an extensive, broad pool of data about merchant activity beyond the information they’ve provided when a new merchant is accepted.
This can include:
- Data about the merchant’s behavior on other sites (previous history and current actions included)
- The merchant’s connections with other URLs outside the merchant portfolio that have proven associations with illicit activity
- Information on previously identified bad actors, illicit websites, and fraud rings compiled from across the internet
The value of resources
With companies constantly being asked to do more with less, your team’s time and focus becomes your most valuable resource. Building complex software that depends on AI, machine learning, data, and deep analysis is not usually a line item on anyone’s budget. In-house development may seem like this cheaper solution, but can you afford the opportunity cost of sinking your entire team – or even a large segment of it--into a project like this?
How EverC can help
EverC partners with large organizations including acquiring banks, PSPs, and marketplaces to deliver effective, customizable risk management solutions. Our proprietary technology-based solutions leverage AI and machine learning to screen large volumes of merchants at onboarding and on an ongoing basis based on each businesses unique exposure to risk and its risk appetite.
Our huge proprietary database includes 7 billion web entities and 108 billion entity connections, allowing us to cast a wide net when screening merchants or products for illicit activity such as counterfeit sales and transaction laundering.
With solutions that are easy to customize, implement, and integrate supported by a team of domain experts, we can help you make the right decision for your merchant monitoring and risk management.
