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How knowing your third parties minimizes ripples across your portfolio

At the IAFCI conference in Phoenix, Rayleen Pirniv (EPCOR) and Jeanette Fox (NACHA) stated a main difference between credit card networks and the ACH:

“Unlike Credit Card processors, the ACH has no prohibited business types.”


What exactly does that mean for you?
Like a pebble in a pond, the ripple effect of a bad third party can always be traced back to the source.

Every year, over 18 billion transactions representing $40 trillion in volume, flow through the ACH network. This is far more than the card networks – and with the mandatory EMV adoption in 2015 – we expect to see even more fraudsters transition their activities from credit card to the ACH network. With the proper due diligence and monitoring, much of this fraud can be prevented.

With the variety of fraudulent merchants out there, fraud can be tricky to catch; if you’re not careful, this diversity can make it easier for the bad merchants to go completely unnoticed. Knowing their traits, business processes, and business models allows you to know what their impact might be on your portfolio.

Due to the amount of damage any one bad ripple can inflict on your portfolio, the importance of knowing your third parties is crucial.

In the end, it all leads back to the pebble.


Know your third parties
The most important way to stop potential damage is to know your third parties and their third parties (their business, their sales process, etc.). By doing the proper upfront work, you can prevent future harm from even occurring.

Using the power of prescriptive analytics during due diligence, you can assess and mitigate any risk associated with each individual third party at boarding. After careful analysis of the information, you can see if they fit your portfolio’s risk tolerance.

Once you make the decision to board a new originator or TPPP, persistently monitoring them can help you analyze on-going risk. By being diligent, you can watch for business changes that don’t align with your own business practices.

As mentioned earlier, it is equally important to be aware of merchants and ACH originators that your third-party payment processors board – Know Your Customer’s Customers!

Knowing your third parties and their customers, and ensuring they follow the same due diligence standards as you, will keep those tiny ripples from turning into portfolio damaging waves.

For more information check out this article on best practices for managing ACH originators.

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