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Define your risk appetite
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Identify and assess your risk sources
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Implement your risk controls
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Monitor and review your risk performance
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Here’s what else to consider
E-payments are convenient, fast, and secure, but they also come with various risks, such as fraud, cyberattacks, compliance issues, and operational failures. To protect your business and your customers, you need to design and implement an effective e-payment risk management framework. This is a set of policies, procedures, tools, and controls that help you identify, assess, mitigate, and monitor the potential threats and impacts of e-payment transactions. In this article, we will guide you through the main steps and best practices of creating and maintaining a robust e-payment risk management framework.
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1 Define your risk appetite
The first step is to define your risk appetite, which is the level of risk you are willing and able to accept in pursuit of your e-payment objectives. Your risk appetite should reflect your business strategy, goals, values, and culture, as well as the expectations and requirements of your stakeholders, such as customers, regulators, and partners. You should also consider the trade-offs between risk and reward, cost and benefit, and security and convenience. Your risk appetite should be clear, measurable, and consistent across your organization, and communicated to all relevant parties.
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Risk tolerance, aka risk appetite, comes down to how much a company is willing to risk for an expected reward. Several factors go into play here, product size, market reach, average purchase price, profit margin, and many other factors determining whether you can take the necessary risk to offset the potential rewards. Profit margins of 25% can much more sustain a possible risk level of 15%, whereas, in the event, a 2% likely risk level would be detrimental if your profit margins are only 1%. However, it would help if you also considered that there is no reward without the risk potential. Ultimately, it would help if you decided whether you would be aggressive, moderate, or conservative because no risk doesn’t exist in the business world.
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2 Identify and assess your risk sources
The next step is to identify and assess your risk sources, which are the factors that can cause or contribute to e-payment risks. These can include internal sources, such as your e-payment systems, processes, people, and data, and external sources, such as your e-payment providers, platforms, networks, and customers. You should also consider the environmental sources, such as the legal, regulatory, social, and technological changes that can affect your e-payment operations. You should use a risk matrix or a similar tool to evaluate the likelihood and impact of each risk source, and prioritize the ones that pose the highest threat.
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Don’t simply rely on stakeholders; they are too close to the problem to see the big picture. Evaluating all factors, interviewing various departments and individuals, brainstorming project expectations, and performing the necessary SWOT analysis is essential. Too often, when accessing risk, internal factors, existing operations, and other seemingly minor details can play a significant factor which is why you must garner the support of outside sources for your review.
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3 Implement your risk controls
The third step is to implement your risk controls, which are the measures that help you prevent, reduce, or transfer the e-payment risks. Your risk controls should be aligned with your risk appetite and sources, and tailored to your specific e-payment needs and capabilities. For instance, authentication and encryption methods can protect data and transactions from unauthorized access or modification. Fraud detection and prevention systems can monitor and flag suspicious activities. Additionally, backup and recovery plans should be in place for continuity and availability of services during disruptions or disasters. Moreover, compliance policies and procedures must be followed to ensure that operations comply with laws, regulations, standards, and best practices. Finally, risk transfer mechanisms such as insurance or contractual agreements can transfer some of the e-payment risks to third parties.
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All your control practices must not come from a single source, do not rely on a single vendor, and never be static. One of the companies and individuals' biggest mistakes when implementing risk controls is depending on one source and sticking to it. Ensure that these controls are tested repeatedly and enforce the necessary policies to re-test at random intervals without the participation of those initially implementing these controls; the bottom line never stops improving.
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4 Monitor and review your risk performance
The final step is to monitor and review your risk performance, which is the outcome and effectiveness of your e-payment risk management framework. You should use key risk indicators (KRIs) and key performance indicators (KPIs) to measure and track your e-payment risk exposure, impact, and control. You should also use feedback mechanisms, such as audits, surveys, reports, and reviews, to collect and analyze data and information about your e-payment risk management framework. You should use the results to identify the gaps, weaknesses, strengths, and opportunities for improvement, and adjust your framework accordingly.
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Document, plan, execute, reevaluate, and never stop improving. One key challenge many organizations face when dealing with key risk indicators is that they become stuck in old ways and old processes and always feel the need to “stick with what works.” It simply doesn’t work that way. Not only is it critical to the overall security of the operation, but risk performance must constantly evolve to meet the ever-changing times. In this environment of machine learning and artificial solid intelligence-based algorithms, constantly adapting has never been more critical than ever.
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5 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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While organizations are accustomed to having a hierarchy and chain of command, this process doesn’t work regarding the security of your bottom line. Every process should have no less than two to three, preferably four independent individuals that are independently audited and constantly reviewed by third parties. At no time should any single process ever be under the direct control of a single person or function. The greatest threat to any organization, big or small, is from within whether social engineering or employee tampering; all operations, designs, and reviews must remove as much potential individual user exposure as possible.
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