Within a few years, the term ‘fintech’ has become mainstream. This is not surprising, as many of these companies have rapidly grown from interesting start-ups into flourishing organisations that
are threatening established financial institutions. Their success comes with renewed responsibilities, such as adhering to central banks’ regulatory constraints. However, because their business models are more innovative than those of many other banks, standard financial models often do not apply.
For one of our clients, a fast-growing payment service provider (PSP), this was the case when estimating the amount of capital required to cover Merchants’ Potential Liabilities (MPL): eligible chargebacks that cannot be recouped from merchants. Since this is one of the main risks to a PSP’s profit margin, extensive risk management solutions had been implemented. However, some risk remained and since this risk materialises in extreme situations only, it’s hard to quantify. As a result, we were asked to help. Through our experience with financial models, structured problem-solving approach and knowledge of statistical techniques, we managed to come up with an easy-to-apply framework. Using this real-time framework, which considers the unique nature of our client’s operational processes, each of their clients is now assigned a risk profile and corresponding capital amount.
Working with this fintech has proven a great experience; they are full of energy and committed to solving their problems efficiently, without getting stuck in the detail or creating unnecessary bureaucracy. This allows us, as consultants, to quickly get to the heart of the problem, gather the right input and derive an appropriate solution. As a result, we managed to solve a seemingly complex problem in a matter of weeks.