The Challenge of Processing Cash-Advance Transactions Online: Navigating Payment Processors' Policies
When it comes to online payment processing, cash-advance transactions can be a complex and misunderstood area. Unlike traditional e-commerce transactions where goods or services are exchanged in exchange for payment, cash-advance transactions involve charging a credit card for a cash withdrawal without any product or service being sought. This unique characteristic poses significant challenges for payment processors when it comes to compliance and risk management.
Understanding Cash-Advance Transactions
Cash advances are features provided by credit card issuers, not by merchants. As the risk is being taken by the credit lender, the cardholder may not be able to make transactions through merchant payment processors that adhere strictly to traditional transaction rules. These rules are designed to protect both the merchant and the cardholder, but they can sometimes create hurdles for cash-advance transactions.
In many cases, credit card issuers provide cash-advance options at various outlets, such as ShopRite, Target, and others, often through bill payment services. However, these advances are limited due to the risk involved in a stolen card or the convenience for the merchant. The safest bets for issuers are ATMs, which have multiple security and fraud prevention options.
Challenges in Online Cash-Advance Transactions
When it comes to processing cash advances online, several challenges arise. According to extensive research conducted by integrating with hundreds of processors, less than a dozen truly understood how to process these transactions. The remaining processors either lacked the necessary knowledge or the appropriate security measures to handle such transactions.
MercerOne (our project) aims to treat cash advances towards home remittance, an endeavor that requires processors with robust security and compliance systems. Despite not being an issuer issue, the challenge lies in finding payment processors that can handle these transactions and meet regulatory requirements, such as OFAC, KYC, and AML checks.
How Processors Can Address Cash-Advance Transactions
To effectively process cash-advance transactions online, payment processors need to understand the unique nature of these transactions and the risks involved. They must also adhere to regulatory requirements while maintaining security standards. Processors can achieve this by:
Understanding the role of the credit card issuer in these transactions. Implementing appropriate security measures, such as OFAC, KYC, and AML checks. Facilitating the proper categorization of these transactions, including the use of separate merchant category codes. Ensuring clear communication with issuers and acquirers to handle these transactions smoothly.In-Depth Transaction Examples
For instance, consider a scenario where a customer shops for $120 at Target and requests a $40 cash withdrawal. Instead of just processing the $120 as a retail purchase, the transaction would be split into two distinct transactions: the original bill amount of $120 and the $40 cash withdrawal. Each transaction would have its own merchant category code and would appear as a separate entry on the customer's statement, allowing transparency and clarity in the transaction details.
By understanding these nuances and working closely with payment processors, businesses can effectively navigate the complexities of cash-advance transactions and ensure compliance with all necessary regulations and security protocols.
*Note: MercerOne's efforts are aimed at addressing the challenges outlined above in order to facilitate a secure and compliant environment for cash-advance transactions and related services.