All about merchant account risk management

Before coming to risk management, it is important to know what the term “risk” refers to. In simple words, risk can de defined as the uncertainty of the end result. After taking an action, when uncertainty of the outcome prevails, it is referred to as risk. Risks are involved in all walks of life. For instance, buying a new house or setting a new business all have certain amount of risk associated with it. Today, the field of risk management is so diverse that fields such as software or business risk management have become professional fields. The general steps practiced or understood in risk management are as follows –

-       Risk identification

-       Finding the probable occurrence of risk.

-       Finding out the consequences of risk when it occurs.

-       Determining methods to reduce risk.

-       Minimising the possibility of occurrence of risk.

Before a new venture is started, all the kinds of risks that could occur are identified. For instance, if people are crossing a street, they expose themselves to the risk of meeting with an accident. In this scenario, the least outcome is sustaining minor injuries. The work result is being killed. How can one reduce the occurrence of risk? In this example, it would be to cross the street by finding the closest pedestrian crossing. This reduces the risk associated with crossing a busy or crowded street.

For any project, risk management follows the same fundamental principles. When credit card firms issue credit cards, they usually run credibility checks prior to issuing the card. Checks are run in order to se whether the consumer is in a position to pay off their bills. The credit card is issued based on the consumer’s expenses and income. If the credit card companies feel that a particular consumer comes under the high-risk category, then the credit limit will be capped accordingly.

Insurance companies too are at a risk while selling insurance. For instance, considering the case where an insurance firm trades general insurance. If the firm discovers that 80% of a particular building is insured by them, then they would “spread” the associated risk. This will be done by getting the underwriting firms to cover some portion of the insurance. In cast the building gets burnt due to a fire, and then the insurance firm along with the underwriting firm will bear the losses. However, if the risk is not spread by the insurance firm, then chances that the insurance as well as the firm could fold up with the occurrence of such an event.

The general idea with regard to risk management is that it is necessary to try and reduce the probability of the occurrence of a disaster. In risk management, it is vital that the chances for risk occurrence is either avoided or reduced. Certain unknown risks that could occur are usually overlooked in risk management. These risks which cannot be avoided are generally left out as they do not come in the scale of risk management.

Contact one of our helpful account representatives to assist you in the setup of a high risk merchant account or offshore merchant account for a high risk merchant.