Risk 101: Everything You Need to Know

Vinodh Poyyapakkam

February 16, 2023

At Coris, we understand how vital it is to constantly assess and monitor risks across diverse surfaces to ensure your company isn’t chancing exposures. 

Whether you’re a payment processor or a vertical SaaS company offering embedded financial products, there are multiple types of risk to look out for – not just fraud. And as we enter an inflationary 2023, companies need to remain hyper vigilant in avoiding risk. 

In this article, we dive into the different types of risk and how your company can continue to prioritize profitability in the face of increased risk.

Types of Risk for Vertical SaaS Companies and Payment Processors

The key here is: You cannot ignore any aspect of risk. Every type must be taken into account, although the effort you put in to manage each of those should vary. Here are the typical types of risk at hand for vertical SaaS companies and payment processors: 

1) Fraud Risk

Fraud risk occurs when the party signing up with your company either is not who they say they are (‘identity fraud’) or has bad intentions. Whatever deception they perpetrate against you causes you to take on liability. 

There are two main types of fraud risk:

  • First-party fraud – perpetrated by the individual/entity rightly associated with opening the account, but clearly coming in with the intent to cause financial harm. This is an especially challenging case.
  • Third-party fraud – a third-party (fraudster) creating fake accounts impersonating real businesses or even using synthetic/sham businesses to commit fraud. 

Another form of third-party fraud is when a fraudster tries to use fraudulent payment credentials to dupe real merchants.

2) AML/KYC Risk

Know Your Customer (KYC) and Anti-Money Laundering (AML) are forms of third-party fraud. Some actors know how to con KYC identity checks to commit fraud, and the liability may be on you for not catching them. 

As for money laundering, if you don’t have the right controls in place to identify and report suspicious activities, it can be damaging both reputationally and financially.

3) Sanctions Risk

Sanctions risk becomes an issue if you allow transactions to be conducted on your behalf by potentially sanctioned bodies or individuals that are embargoed by the Office of Foreign Assets Control (OFAC) or similar regulatory bodies in other countries. These regulations shift from country to country, so you need to screen anyone you work with, even vendors who supposedly do their own risk assessments. 

4) Credit Risk

In these situations, the identity and intent of the customer is not in question, but they may not be able to deliver on their obligations. This is the primary source of risk for many payment processors and vertical SaaS companies offering embedded payments

Small businesses accept credit card, ACH or other methods of payments through your business, but they themselves may go out of business before fully delivering the products/service that was paid for, leaving you with unpaid chargebacks from their customer disputes. 

5) Operational Risk

Operational risk occurs when your team can’t deliver on basic company promises. For instance, there could be a failure to keep your payment services up and running, which would lead to unhappy customers.

How SaaS Companies Can Prioritize Profitability in 2023

There’s endless speculation as we enter an inflationary 2023, but one thing is clear: 

The shift in focus from SaaS growth potential to profitability is here to stay. 

In the past few years, VC has notably pursued SaaS companies with double-digit growth percentages. Now, the strategy of growth at any cost won’t get you very far. One example in the public market is Toast. Their stock recently dropped because they didn’t abandon that mindset. 

When you consider profitable growth, it's not simply about squeezing in more margins – it’s about making sure you have your losses under control. 

Automate Your Risk Operations to Keep Losses Under Control

To make that a reality, you need to take a look at your risk operations. 

Those ops flows shouldn’t be limited to manual work. 

Automating risk assessments creates the kind of frictionless environment where growth comes more easily. You can double your volume without doubling headcount or ops. 

At Coris, we firmly believe that keeping your losses down is an essential way to reduce stress downstream. SMBs will already be under extra pressure with the economic downturn, so you need to monitor for exposures diligently. 

That sort of proactiveness will help you mitigate any resulting risks. 

Safeguard Your Company Ahead of the Coming Downturn

Through over a decade in risk management, there has been a distinct lack of understanding and comprehensive education on the true extent of risks. 

Teams do risk assessments on the fly when they see others in their spheres doing so, but it will not work if you don’t commit to a thorough job. That’s why so many wind up taking on liability. 

With the anticipated economic downturn next year, people need to keep exposure in check. In this situation, the climate has been predicted early on – which means that you get to make the right calls and invest in safeguarding your business in advance. 

With an automated solution like Coris, you can prevent risk and ultimately minimize 80% of risk exposure.

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