Managing Merchant Credit Risk

Francesco Burelli
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Economic activity has been severely impacted by business closures as well as diminished consumer purchasing power due to furlough and job losses. As businesses start to reopen, commerce will return to a warped reality of radically depleted consumer spending, social distancing in shops, a shift in consumer preferences to online and liquidity-strapped merchants.

Acquirers will have to deal with an increased and more widespread merchant credit-risk exposure. All of these factors will significantly contribute to the credit-risk exposure of acquirers, PSPs, ISOs and payment organisations.

Managing this will require a deeper understanding of merchants’ financial and trading conditions. This implies having the ability to balance supporting merchants with the ability to address the heightened credit-risk exposure that is now part of their new trading reality.

The situation will also confront acquirers with difficult decisions and would ultimately diminish the acquirer’s business, which would maximize the credit risk exposure due to an almost-likely write-off.

Based on experience and best practice surrounding merchant credit risks, there are a number of practical actions, illustrated throughout this report, that can be undertaken. These adapt the business to better manage increased exposure through more highly refined risk-management practices. More than ever, these should be at the core of any merchant portfolio management strategy

The report is available for download below.

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Managing Merchant Risk
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