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the sub merchants. You need to have tools to get those
merchants boarded and underwritten. So there's a lot of
different things that you have to do."
Deana Rich, President of Rich Consulting Inc. and
specialist in risk, fraud and regulatory compliance, said
the risk taken on by new aggregators depends on the
original makeup of MSPs. "If they are not taking risk
and they are just a sales office, just as if they became
a liability ISO, they would be taking more risk," she
said. "If, however, they were already a liability ISO, by
becoming an aggregator they are simply taking on a
different type of risk, not necessarily more risk."
Becoming an aggregator can also involve a significant
upfront investment, depending on the MSP's starting
point. "If you are a small registered ISO who does not
take risk and has 10 employees today, it's probably a
relatively large investment for you," Ablowitz said. "On
the other hand, if you are currently taking risk in your
ISO, it may not be an enormous investment for you.
It just depends on what your approach is, how much
different it is from the things you do today and what the
ROI [return on investment] is on the opportunity that
opens up for you."
Managing risk
If the typical ISO is like a methodical accountant in
the way it boards merchants and assesses risk, the
aggregator is more like a skydiver who jumps out of the
plane without first testing the parachute. It is why, in the
aggregation model, the merchant boarding process is so
simple and refreshing from the merchant's perspective;
instead of having to fill out tedious paperwork and
divulge detailed financials as a condition of being set
up with a merchant account, a little general information
is collected upfront, and the merchant is boarded in
minutes.
Aggregators thus assess the risk of merchants over time
and on the back-end. "Since there's no transparency, the
ISO's going to have to make sure that they've got checks
and balances to determine if the merchant changes from
what it's saying that it is, say, from a window washer to
selling drugs out of his house," said payments attorney
Zahara Alarakhia. "There's really no way of knowing
that until you look at the transactions and see how
much would a window washer make selling washing
services out of their house versus selling drugs out of
their house."
Just because aggregators board merchants in a different
way, they are not immune from complying with
federal Know Your Customer requirements and other
fraud mitigation regulations. "[In] the Square model,
the true aggregation model, knowing your customer
rules, all the credit underwriting with respect to the
sub merchants, is still there," Alarakhia said. "You just
do it over a longer period of time rather than prior to
38
the sub merchants. You need to have tools to get those
merchants boarded and underwritten. So there's a lot of
different things that you have to do."
Deana Rich, President of Rich Consulting Inc. and
specialist in risk, fraud and regulatory compliance, said
the risk taken on by new aggregators depends on the
original makeup of MSPs. "If they are not taking risk
and they are just a sales office, just as if they became
a liability ISO, they would be taking more risk," she
said. "If, however, they were already a liability ISO, by
becoming an aggregator they are simply taking on a
different type of risk, not necessarily more risk."
Becoming an aggregator can also involve a significant
upfront investment, depending on the MSP's starting
point. "If you are a small registered ISO who does not
take risk and has 10 employees today, it's probably a
relatively large investment for you," Ablowitz said. "On
the other hand, if you are currently taking risk in your
ISO, it may not be an enormous investment for you.
It just depends on what your approach is, how much
different it is from the things you do today and what the
ROI [return on investment] is on the opportunity that
opens up for you."
Managing risk
If the typical ISO is like a methodical accountant in
the way it boards merchants and assesses risk, the
aggregator is more like a skydiver who jumps out of the
plane without first testing the parachute. It is why, in the
aggregation model, the merchant boarding process is so
simple and refreshing from the merchant's perspective;
instead of having to fill out tedious paperwork and
divulge detailed financials as a condition of being set
up with a merchant account, a little general information
is collected upfront, and the merchant is boarded in
minutes.
Aggregators thus assess the risk of merchants over time
and on the back-end. "Since there's no transparency, the
ISO's going to have to make sure that they've got checks
and balances to determine if the merchant changes from
what it's saying that it is, say, from a window washer to
selling drugs out of his house," said payments attorney
Zahara Alarakhia. "There's really no way of knowing
that until you look at the transactions and see how
much would a window washer make selling washing
services out of their house versus selling drugs out of
their house."
Just because aggregators board merchants in a different
way, they are not immune from complying with
federal Know Your Customer requirements and other
fraud mitigation regulations. "[In] the Square model,
the true aggregation model, knowing your customer
rules, all the credit underwriting with respect to the
sub merchants, is still there," Alarakhia said. "You just
do it over a longer period of time rather than prior to
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