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What to do when your bank fails

Merchants need to have backup plans in place to ensure they have constant access to their capital amid fears of a banking crisis, writes Ralph Dangelmaier, Global CEO of BlueSnap.

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Ralph Dangelmaier/Bluesnap

When is a crisis officially a crisis? 

It’s a question that’s gripped the world in recent months after the collapse of a string of banks sent shockwaves through the global economy. 

Panic that started in the US with the downfall of banks like First Republic quickly spilt over to Europe with the collapse of Credit Suisse. 

Though the situation has seemingly stabilised over recent weeks, the fall of these institutions has sparked concern about the health of the banking industry and how it might impact the wider economy – specifically, what happens if a business suddenly cannot take payments?

For hard-hit merchants in particular, the situation brings the issue of risk into sharp relief. At a time when rampant inflation and a cost-of-living crisis are pushing many businesses to the brink, retailers cannot afford the prospect of outages to their payment processing.

So, faced with the spectre of bank failure, what can merchants do to safeguard themselves so they know their payment processing is protected?

The worst-case scenario 

Today, digital payments are the lifeblood of any business. Whether it’s online transactions, gift card redemptions or even in-person purchases, these transactions make up the mainstay of merchants’ revenue. But what happens when the system goes down? 

Payment provider outages can occur without warning, lasting hours at a time before the provider fixes them on the back end. It’s a situation that can be even worse should your bank fail. 

When this happens, it can throw your business into chaos. Indeed, with so many options available to them, it won’t take long for impatient customers to take their business elsewhere. 

However, an outage won't just hit you in the pocket, it can also cause irreparable damage to your reputation as frustrated customers will no doubt remember the inconvenience the outage caused.

This might seem like a worst-case scenario, but as the recent banking crisis has shown - you can never be sure where and when disruption will strike. We live in uncertain times, that’s why merchants need to have a backup plan - in the event that their primary bank collapses - rather than putting all of their eggs in their payment processor’s basket. 

Built-in failover and redundancy 

So what can businesses do to protect themselves so that they can trade with confidence, and ensure that consumers can access their money and make payments, always?

Put simply, merchants need to partner with a payment orchestration platform that supports redundancy and failover transactions, that enable you to keep the lights on even if the worst should happen and one bank declines a transaction. 

In the current climate, that means that you can’t exclusively rely on a single bank to manage your payments. Instead, you need to branch out and ensure you have a backup plan should your bank go down - whether it’s a temporary outage or something more permanent. 

The way to do this is to diversify your payment processing with a global payment orchestration platform. 

Take major retailers for example. Companies like Amazon are conducting transactions all over the planet, 24 hours a day, 365 days a year. They can’t afford to stop accepting payments, so they put systems in place that enable them to use a number of banking partners. 

Known as multi or dual acquiring, this means that if a bank declines a transaction for whatever reason, the process is automatically routed to another institution that can complete the transaction. 

It’s a system that inherently protects merchants from unexpected outages and safeguards against the kind of issues that the failure of a bank might cause. But there’s a catch. 

Because it’s traditionally been a complex process that requires multiple contracts, across multiple different banks in multiple different markets - this kind of failover has typically been reserved for major retailers who can afford the expense.

However, that’s all about to change thanks to the new generation of payment orchestration platforms that are finally giving merchants of all sizes the tools they need to protect themselves.

Resilience is in your hands

As the failure of First Republic and Credit Suisse have shown, disruption is the new normal. Faced with the prospect of growing uncertainty, business-as-normal is no longer an option. 

Instead, in order to navigate this ever-changing landscape you need to do everything you can to protect your operation from risk. 

Having a backup plan is something that you already do in other areas of your business. But if you’re willing to backup your data or protect your servers, why aren't you doing the same for something as important as your payment processing? 

The views and opinions expressed are not necessarily those of AltFi.

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