The Commercial Risk and Compliance practice provides customized risk advisory services to companies in the merchant acquiring and commercial card issuing industries, among others, including those with products that access deposit accounts.
Payments companies today are operating in a risk landscape that is shifting ever more rapidly thanks to new technologies, changing regulatory regimes, volatile financial markets, and their growing interdependencies. Navigating this complex web of emerging risks and opportunities necessitates a more anticipatory approach to risk management.
Our commercial risk practice is grounded in decades of industry experience and an exclusive focus on the payments vertical, ensuring in-depth and up-to-date understanding of the industry and the issues our clients face. Our roster of clients, which includes the largest, most successful and dynamic players in the industry, is testimony to our success in helping companies develop the insights that they need to detect and mitigate the ever-changing layers of risk. With our unparalleled industry experience and broad risk management capabilities, we are uniquely qualified to help clients identify and evaluate risk-adjusted business opportunities and extend their risk management function beyond compliance.
Scroll below to learn more about our capabilities in the following areas:
- Merchant Acquiring
- Commercial Cards and Payments
- Products that Access Deposit Accounts
For more information please contact Raymond Carter, Principal
Merchant Acquiring
We have represented every key segment of the merchant acquiring industry including financial institutions, sales organizations, third-party service providers, card networks, technology vendors, merchants, and other related organizations. Our work with the major players across the acquiring value chain provides us with a holistic perspective on the range of counterparty risks facing organizations in this industry.
Client Types:
- Member-bank Merchant Acquirers
- Sponsor Banks
- Non-bank Merchant Acquirers
- Processors
- Payment Networks
- Private Equity Investors
- Merchants
Our engagements are customized to the client's specific needs and scenario. The highlights below represent a sample of the type of assignments that we have completed.
| Areas of Engagement | Representative Example |
| Policy Development | Drafted credit and risk policies for several of the largest domestic and international merchant acquirers. In conceptualizing the acquirer’s credit policy, we worked with the client to customize the policy based on numerous factors including risk appetite, laws and regulations, growth goals, and the target market. Our output ranged from customizable policy “templates” to full-blown, policy documents that were readily deployable and easily adapted to optimize the acquirer’s risk-reward balance. First Annapolis has also assisted card networks with establishing operating rules for third party participants. |
| Risk Diagnostics | Conducted wide-ranging evaluations of the management and risk-based performance of merchant programs. Areas of diagnostic and benchmarking focus typically include individual merchant profitability, chargebacks, losses, sales channel performance, attrition, pricing, initial and ongoing credit analysis and decisioning, fraud mitigation practices, third-party contracts, and key customer service metrics. Findings are used to develop concrete recommendations on tactical measures client could implement to optimize underwriting and tighten loss controls if needed. |
| Exposure Modeling | Engaged by several leading acquirers to develop risk exposure models in order to quantify contingent liability of their individual merchants and portfolio. Clients have leveraged exposure models as a tool for approving and pricing merchants, for ongoing portfolio management, and for determining the appropriate degree of oversight and controls commensurate with the risk. |
| BIN Sponsorship Assistance | Advised many of the leading sponsor banks on evaluating risk and compliance issues associated with bankcard acquiring sponsorship, ensuring appropriate controls are in place to identify and mitigate risks, and determining whether they should enter, remain in, or exit the sponsorship business. We also develop go-forward strategies and practices that maximize revenue while minimizing risk and assist non-banks with securing a BIN sponsor. |
| Contract Review/ Negotiations Support | Advised diverse U.S. merchants, including airlines, retailers, and utilities, in selecting a merchant processor and negotiating merchant agreements that best meet the client's needs from the perspective of fit and pricing. |
| Due Diligence Support | Served as an advisor on the divestiture, acquisition, and formation of numerous merchant portfolios, residual streams, and alliances. From a risk perspective, we conduct due diligence to identify strengths and weaknesses to ensure our client fully understands the merchant business, portfolio, and latent credit and other risks. |
| Compliance Review / ARP Review | Independently conducted card network Acquirer Risk Program Compliance Reviews for numerous acquirers since the program’s inception in 2004. We have also conducted compliance diagnostics for acquirers, ISOs, and merchants interested in validating compliance with federal laws and network rules and regulations. |
Commercial Cards and Payments
Combining extensive knowledge of commercial card programs with deep risk management expertise, we help clients in the commercial payments industry to develop a deeper understanding of their business vulnerabilities, implement effective strategies to manage exposures, and establish best-in-class risk policies, processes, and systems. Our clients include large, midsize and small financial institutions, commercial card issuers, payment networks, and retailers offering general purpose commercial payment products (e.g., corporate travel, purchasing, small business, fleet), and private label commercial payment products (revolving, fleet, travel).
The highlights below represent a sample of the type of assignments that we have completed:
| Areas of Engagement | Representative Example |
| Policy Development | Drafted the credit policy for the U.S. division of a global organization looking to improve competitiveness in the U.S. market. Using proprietary research and knowledge of industry best practices, we drafted a new credit policy for the U.S. operations that enabled the client to strike a balance between being "in the market" with respect to information required from borrowers and meeting the underwriting requirements set by the overseas parent organization. |
| Benchmarking | Conducted a strategic assessment and benchmarking of the governance framework and risk management functions at a top-10 bank's commercial card business. Benchmarking results were used by the client to enhance its risk management infrastructure and operations, leading to improvements in the bottom line. |
| Business and Portfolio Management | Managed a profitable, diversified payments business remaining from a failed financial institution, including business and consumer card portfolios, over an eighteen month period that included the economic downturn and implementation of the CARD Act. Materially enhanced the value of the organization such that the selling price was exponentially higher than offers received during a previous sale process. |
| Growth Strategy | Performed an overall business diagnostic and benchmarking assessment of the captive finance subsidiary of a diversified global manufacturing organization to identify areas of weakness or concern. Based on our findings and utilizing our industry knowledge, we provided recommendations on specific improvements in the business that the client would need to initiate in preparation for implementation of an aggressive growth strategy. |
| Due Diligence | Managed the due diligence process during the auction of a commercial fleet card lending and processing business enabling a streamlined due diligence process combined with attractive bids. |
| BIN Sponsorship | Conducted a compliance and risk assessment of a global commercial fleet card business on behalf of one of the largest domestic banks that was considering a sponsorship opportunity. The assessment enabled the client to fully understand the risk inherent in the business, strengths, and areas that required attention prior to sponsorship. |
| Risk Diagnostic | Executed a full spectrum risk diagnostic for a commercial card lender to identify changes that could be made to stem the rapid growth of losses during the height of the recent economic downturn. Our span of recommendations resulted in a significant reduction in losses without materially impacting the flow of new customers. |
| Market Research | Conducted research on the micro-business lending market on behalf of a top-10 bank, including market sizing, competing products, competitors, and size of the opportunity. Our findings and recommendations helped lay the groundwork for the client to focus on a rapidly growing and profitable sector. |
| Business Diagnostic and Options Analysis | Evaluated the stagnant commercial card business of a leading international financial institution to identify and business case the options available to the client. Based on our findings, the client moved forward with divestiture resulting in a gain on sale. |
Products that Access Deposit Accounts
With prepaid deposit access products gaining momentum in recent years, banks and program providers are being challenged to develop and implement risk management practices that reflect the nature and complexity of these products. Our Commercial Risk and Compliance practice provides guidance to banks, program managers and processors for assessing and managing the risks associated with deposit access products including general purpose reloadable debit cards, payroll cards, government benefit cards, retail gift cards, mobile wallets, etc. We also assist with assessing the counterparty risk among program stakeholders.
The highlights below represent a sample of the type of assignments that we have completed.
| Areas of Engagement | Representative Example |
| Risk Diagnostic | Conducted a risk diagnostic of a prepaid program manager to determine whether the appropriate controls, tools, and technologies were in place to mitigate the risk of losses. Our recommendations enabled the client to better identify fraudulent requests for prepaid cards, reduce chargebacks, and prevent negative balance accounts. |
| Fraud Management and Compliance | On behalf of a prepaid program manager, performed fraud management and compliance due diligence on the financial institution and processor partners to validate that appropriate practices are in place and followed to ensure compliance with federal laws and network rules and to minimize the incidence of fraud. |
| Market Research to Support Market Entry | Conducted market research on behalf of a top-10 financial institution looking to enter the prepaid market as a BIN sponsor bank. We were able to provide valuable information on sponsorship risks and operational requirements that guided the client in developing the business case for market entry. |
| BIN Sponsorship | Conducted due diligence on an ATM deployer for a top-10 financial institution to assist in determining whether the client should continue with its sponsor relationship. Results were used to require the ATM deployer to alter certain practice to be in compliance with debit network rules. |
Project Highlights
Drawing on 15+ years of project experience, our Commercial Risk practice includes professionals who joined First Annapolis from public accounting and regulatory environments. Our value-add is specialized expertise. We are in the market. We bring a hands-on approach to projects, and we know best practices in identifying business risks and designing strategies/systems to mitigate those risks.
Our continually diverse Commercial Risk engagements enable us to sharpen our skills and stay current on the industry. A sample of our experience follows.
Merchant Acquiring
- BIN Sponsorship: Advised many of the leading sponsor banks on evaluating sponsorship risks, determining appropriate oversight and control, and determining whether they should enter, remain in, or exit the sponsorship business. Assisted multiple non-bank acquirers in securing bank sponsors, negotiating sponsorship contracts, etc.
- Deal Support: Provided risk-focused due diligence support during the divestiture, acquisition, and formation of numerous merchant portfolios, residual streams, and alliances.
- Risk Infrastructure: Advised a large cross-section of acquirers and processors on developing the necessary risk infrastructure for proper oversight of their merchant programs, including underwriting and risk policies and processes, third party management practices, loss controls, compliance procedures, etc.
- Program Management: Conducted in-depth evaluation and industry benchmarking of the management and risk-based performance of several merchant programs, focusing on identifying areas of weakness and/ or opportunities to tighten loss controls.
- Compliance Review: Independently conducted card network Acquirer Risk Program Compliance Reviews for several acquirers. Also conducted compliance diagnostics for acquirers, ISOs, and merchants interested in validating compliance with federal laws and network rules and regulations.
- Merchant Support: Advised diverse U.S. merchants in selecting a merchant processor and negotiating merchant agreements that best meet the clients' needs from the perspective of fit and pricing.
Commercial Cards
- Policy Development: Developed a go-to-market commercial card credit policy for the U.S. commercial cards division of a global organization.
- Growth Strategy: Performed overall business diagnostic and benchmarking assessment of the captive finance subsidiary of a global manufacturing major and identified improvements required to jumpstart growth.
- Loss Mitigation: Executed full-spectrum risk diagnostic of client’s commercial payments business to identify opportunities to stem accelerating losses during the economic downturn. Recommended measures to mitigate losses without affecting new account growth.
- Portfolio Management: Assumed full responsibility for managing business and consumer card receivables of a failed financial institution. Materially enhanced the value of the organization such that the selling price was exponentially higher than offers received during a previous sale process.
- Business Casing: Conducted market research on the micro-business lending market on behalf of a top-10 bank and provided inputs for developing a business case for market entry.
Deposit Access
- Risk Management of Existing Program: Conducted a risk diagnostic of a prepaid program manager to determine whether the appropriate controls, tools, and technologies were in place to mitigate the risk of losses.
- Fraud Management and Compliance: Conducted in-depth assessment and benchmarking of the fraud management and compliance practices at the client’s partner financial institution and processor and suggested opportunities for improvements.
- Market Entry: Supported a top-10 bank considering entry into the prepaid market as a sponsor bank by providing information on risks and operational requirements of sponsorship and aiding in developing a business case for market entry.
- BIN Sponsorship: Conducted due diligence on an ATM deployer on behalf of its sponsor bank with a view to help client determine whether to continue its sponsor relationship.
Insights
First Annapolis has published numerous articles regarding payments-related commercial risk and compliance issues. Our recent articles include a “Special Edition Risk Alert” that discusses the potential implications of a double-digit increase in acquiring exposure and an “Acquiring Risk Retrospective” that provides a compilation of our past risk articles.
Leadership
Our Commercial Risk and Compliance specialization is headed by Raymond Carter, a Principal at First Annapolis whose professional experience is rooted in risk mitigation and industry compliance. A diverse team of managers, consultants and analysts assists Ray with client engagements and research initiatives, contributing a range of perspectives from each of the company’s core practice areas.
For more information on our Commercial Risk team, please reference the following biographies:
