This article was written by Isaac T. Armoni, head of Legal and Chief Compliance Officer for Moneynetint.
Let’s go back in time – in the past when a merchant received a wire transaction, it was considered the most secured method of payment.
Using the SWIFT system, money is transfered from one bank to the other and the account of the merchant was credited with the amount wired.
It was considered so safe, that suppliers delivered the product F.O.B (free on board) or provided the service based solely on a SWIFT message copy confirming that the funds were sent and before the funds actually settled into their account.
Is it really safe? Is the merchant protected?
Let’s review the situation a bit more closely. Merchants often receive investments or payments from clients using the international wires system, sending funds through a bank or a payment processing company such as moneynetint, Ltd. (MNI). The client then receives a service or product from the merchant. 2-3 months later the client approaches his bank and requests to make a recall of the funds he sent previously. The product was delivered, the service was provided. The client for whatever reason demands his money back and approaches his bank. If for example the client invested in an investment vehicle (forex, binary, options, stock) – his investment may go up or down in value. Yet he still claims a recall of the funds from the bank.
What is the exposure to the merchant?
Often the product was delivered or the service was provided, and then the bank or the payment service provider decides to charge the merchant’s account.
This relationship between the merchant and the client is now affecting the banking relationship of the merchant and the bank and/or the payment service provider and its bank. In today’s world, compliance departments in bank grow bigger and bigger. Transactions are monitored closely due to stricter and stricter regulatory requirements by the authorities who are forcing the banks to participate in the search for money laundering and/or terrorism funding.
From the perspective of the bank or the payment institution, once a recall of funds request is received, it alerts the bank’s compliance department. Too many recalls on an account, very similarly to chargebacks in credit cards, raises the risk level of the account and triggers sanctions by the bank in the form of account suspension and/or termination of the banking relationship.
For the merchant, this means his business account, in some cases his only banking account, will be terminated and this can cause direct damage for the merchant. For a payment processing company, it will terminate one of its network and chain of bank accounts and is ,ore significant damage than that of the merchants’.
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How do we solve this problem? What should merchants do?
1. Merchants must keep AML policies in place and collect clients’ information.
2. Merchants must post adequate warnings and disclaimers on their websites and provide a return or cancellation policy, to provide the investors and clients with knowledgeable information about their investment and payment method.
4. When merchants get notifications from the bank and/or the payment service provider, they should take immediate actions to mitigate the damage. Responding clients, answering their needs and concerns is often the right and cheaper solution. Resolving the dispute can be sometimes cheaper and more advantageous for the merchant.
5. Merchants must make sure the clients signs an ‘I Accept’ before they wire funds, confirming that they know which products they purchased or which services they requested and if higher risk is involved, notifying them of the risk and that they cannot make wire recalls.
6. Lastly, merchants must choose their payment processing provider wisely. Maintaining the relationship with your payment gateway is by far more important for your banking needs and your cooperation’s development. Choose a company that can protect you and that has the knowledge and expertise to deal with these complicated banking situations. More importantly, adhere to and maintain your payment processor AML procedures and compliance rules, respect them and don’t abuse the solutions provided to you. You will better protect your business and strengthen your banking services and mostly mitigate damage and have control over recall cases.