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The dangers of breaking compliance rules within the card payment schemes

Card payment operations is a highly regulated industry, with a core aspect being compliance with license rules (scheme rules and regulations) of international payment networks (e.g. Mastercard, Visa) and the management of scheme fees and interchange rates. 

Compliance is only becoming more complex, and the ever-changing requirements often demand a significant amount of manual work to administer the rule changes – although modern routes are available for accelerating and streamlining some of the processes. 

As payment players race to stay up-to-date with the latest developments, which can be subject to updates on a weekly basis, it’s worth noting the dangers of what can happen when a company violates those rules within the card payment ecosystem. 

First, the most apparent and well-known danger is being faced with financial penalties. At first glance, they may seem bearable in certain scenarios. However, it should be noted that the fees are often structured in such a way that their amount gradually rises with the increasing duration of the non-compliance status and can reach considerable financial dimensions.

Besides financial penalties, in extreme cases - if payment players are unable or unwilling to follow the rules, they also face the risk of having their license scope restricted or even losing their license with the scheme. This is only reserved for the direst of cases where rules are severely and repeatedly violated and the licensee, despite multiple warnings, fails to restore compliance. What is more likely to happen in cases where compliance is not adhered to are operational issues that could damage the company's reputation. 

A fundamental value proposition among some of the newer banking offerings is the promise of frictionless payments. If payment players fail to keep up with compliance requirements and lose their ability to be fully functional, this can have knock-on effects regarding interoperability within the broader payment ecosystem.

This, in turn, can lead to the opposite of seamless customer experiences - with delays, declined payments, and other setbacks that can instantly turn off prospective and existing customers. As well as these external risks around reputational damage, there are risks to internal operations that card payment players need to remember too. 

What is often forgotten and underestimated is the fact that a non-compliance case resolution often involves writing statements and remediation plans to schemes, and this is a major operational effort. Performing remediation to address requirements that are not in place and providing updated reports can take hundreds of hours of effort and could require bringing on new staff who can focus solely on these efforts. As the scheme has a say in this matter and may impose additional requirements as well as tighter timelines to the remediation plan presented, other projects, initiatives and important activities might have to be postponed or experience delays. 

Lastly, there is potential effort due to Audits by schemes. Like any other Audit, these take an enormous amount of time and energy and are designed to ensure that every single process within a card payment player’s operational framework can be accounted for. 

All in all, instead of facing the dangers listed above, it is much easier to use solutions sooner rather than later that help to automate the process and lighten the operational load on staff.

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Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 February, 2023, 12:00Be the first to give this comment the thumbs up 0 likes

Retailers keep whining about 2-3% MSC / MDR incurred by them for accepting credit card payments. On top of that, there's a ton of rules to comply with.

We keep hearing about A2A RTP and Open Banking Payments. 

Why don't retailers embrace them and ditch credit card networks altogether?

Maryam Hashemi Ahmadi
Maryam Hashemi Ahmadi - Rivero - Zurich 12 June, 2023, 12:03Be the first to give this comment the thumbs up 0 likes

Great read

Fatemeh Nikayin

Fatemeh Nikayin

Co-Founder

Rivero

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13 Sep 2021

Location

Zürich

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RegTech

Regulatory technology, is a new technology that uses information technology to enhance regulatory processes. With its main application in the Financial sector, it is expanding into any regulated business with a particular appeal for the Consumer Goods Industry. Often regarded as a subcategory under FinTech, RegTech puts a particular emphasis on regulatory monitoring, reporting and compliance and is thus benefiting the finance industry.


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