By: Jane Hennessy, Head of External Alliances
I recently attended the WACHA Electronic Payments Conference in Middleton, WI which had record attendance. It was a very engaging and informative conference covering a number of the hottest topics in payments such as Same Day ACH and Blockchain.
Joe Casali of NEACH moderated a panel discussion entitled “Third Party Payment Processing: How to Distinguish the Good the Bad & the Ugly” which included Marsha Jones from the Third Party Payment Processors Association, Jonathan Lilienthal from Argos Risk and myself. Marsha covered the definition of third-party payment processors (TPPPs) and third-party senders as people are often confused by the terms, and bankers may not realize they have TPPPs in their portfolios. TPPPs have no direct regulatory oversight, but banks are still held responsible for the actions of their third parties and must be in compliance with regulatory as well as NACHA guidance.
Jonathan and I discussed the risks involved with working with TPPPs including:
• Returned debits
• Legal action
• Worsening business financials
• Lack of transparency into business customers that may eventually commit fraud
We also discussed Knowing Your Customers’ Customer (KYCC) policies and solutions that can help banks work more confidently with TPPPs and provide visibility to regulators, including:
• Semi-annual reviews of the TPPPs customers including business name, type of business (NAICS code review), business principals, and changes in business health
• Web site content reviews
• Reputation monitoring to detect any TPPPs or TPPP customers that may be exhibiting increasingly risky behavior
Many session attendees indicated they had TPPP customers in their portfolios, but some thought that if they were payroll processors there were no issues or risks associated with that category. Unfortunately, there are some payroll processors who have committed fraud and continue to do so by changing their names and other company information to avoid detection.
Marsha Jones, Connie Mosier, co-President of InterceptEFT and I will be conducting a complimentary webinar on May 17 specifically on this topic entitled “Beating the Bad Guys by Knowing Your Customer: What Payroll and Payment Processors and the Banks that Serve Them Need to Know”.