PEP Episode 029 — Ever-Changing Payments Industry with Elaina Smith of Secure Bancard on Risk & Technology

Podcast Description:

Unlock the secrets of the payment processing world with insights from Elaina Smith, the Chief Financial Officer at Secure Bancard. Discover how Elaina transitioned from a career in public accounting to co-founding a leading wholesale Independent Sales Organization (ISO) with her husband. Her journey is a testament to adaptability and continuous learning in a fast-paced industry where every day presents new challenges and opportunities.

Explore the inner workings of a wholesale ISO that insources critical activities usually outsourced to processors, and understand the significance of protecting relationships with clients in high-risk sectors like CBD and auto warranties. Elaina shares her expertise on risk management strategies that keep businesses afloat amidst financial and reputational challenges. Gain a deeper understanding of the regulatory landscape and how it affects merchant operations, especially those categorized under high-risk portfolios.

Dive into the complexities of merchant education within the payment processing industry. Learn about the challenges merchants face, from chargebacks to transaction laundering, and the crucial role agents play as trusted advisors. Elaina discusses the intricacies of implementing faster funding methods, the relentless battle against fraud, and the technology investments necessary for staying competitive. Finally, hear about the ongoing issue of identity theft and the MATCH list, along with the rigorous processes involved in risk assessment and merchant support. This episode is packed with valuable insights for anyone interested in the ever-evolving payment processing sector.

Visit Elaina Smith at Secure Bancard:

Podcast Transcription

Elaina Smith (00:00):

We also used to have, like I said, we don’t go direct to merchant, but because we’re a payment processor, we used to have a link to our application online. So as a merchant apply now a hundred percent of those applications that came in were identity. So finally just took that down completely because that got a little old and those people will call and they have the nerve to call, Hey, where are you with my application? Did you approve that application yet? And I need this particular kind of gateway and all sorts of, I mean things that most merchants don’t know, they really give themselves away. So it’s kind of interesting what’s happening in that space, and I really hope that we can have some tools that better help us stop that because it is a real problem.

Jeremy Stock (00:49):

Welcome to the Payments Experts podcast, a podcast of global legal law firm.

Bryce Van De Moere (00:57):


Jeremy Stock (00:58):

Hope you enjoy this episode. Welcome to the Payments Experts Podcast, a podcast of global legal law firm. Today we are very excited to have in studio with us, a senior associate attorney, Bryce Vander Moore, as well as our special guest remote with us on Zoom, we have Elena Smith, who’s a Chief Financial Officer over at Secure Bank Card. Elena, welcome and thank you so much for joining us today.

Elaina Smith (01:27):

Thank you. It’s good to be here.

Jeremy Stock (01:29):

Where are you joining us from, by the way? Where in the world are you?

Elaina Smith (01:35):

So we are in the Atlanta area. We’re actually in Alfreda. It’s a suburb north of Atlanta.

Jeremy Stock (01:42):

Excellent. I was down in Atlanta a couple years ago in Georgia for a conference. I think we’ve got another one this year, if I do remember correctly. It’s a beautiful area and great weather too.

Elaina Smith (01:53):

We try to stay away from the city up here. Yeah, it’s nice up in the suburbs. We live about 10 minutes from where we work. It’s everyone who comes to Atlanta talks about the traffic, but if you are up in the suburbs and you can kind of stay in your little bubble, it’s really nice to be here. I’m just not a city person, so we love it out in green space.

Jeremy Stock (02:18):

Very nice. Yeah, much. Great. Yeah. So Elena, you are with Secure Bank Card. Why don’t you tell us and tell our audience if you don’t mind, a little bit about yourself and your role at Secure Bank Card.

Elaina Smith (02:33):

Sure. So we started the company about 12 years ago. My background is in financial accounting. I started in public accounting and did that for several years and I took some time off to basically just be a mom and raise a family. My husband started the company about 12 or 13 years ago after doing this kind of thing for other companies for too long. And I finally said, Hey, you’ve got to go out on your own. It’s time to do this on your own. So we did that together. I naturally was the free finance person, the resource to be able to cover that. And I honestly just thought I would just cover the accounting kind of function and never really be more involved in the business. But as the years have gone on, I’ve gotten more and more involved. So now every day is different. I do a lot more than just the accounting, do a lot of the marketing activities, a lot of help with a lot of the operational activities, help streamline things.

Elaina Smith (03:37):

We built our own platform and was heavily involved in that. The thing I love about it, first of all, payments is ever changing. I love that part of it that there’s always something new to learn and just when you think everything, you realize nothing at all and you’ve always scratched the surface. True that. So I love that part of it. And then I also love that as the company grows, my role is changing in the company too, and I get involved in more and more things. So it’s never boring. Every single day is different. Sometimes that’s boring in a good way, or not boring in a good way, rather that it’s the kind of excitement that you’d rather not have when you’re dealing with moving money. Things don’t always go the way they’re supposed to unfortunately, and we’ve got merchants to take care of on the other side that affects them unfortunately. But 99.99% of the days are good and everything works the way that it should and we have a lot of fun doing it.

Jeremy Stock (04:32):

Elena, I actually really relate a lot to what your story is there. I feel very similar. My role as director of operations kind of has also morphed into this marketing side of things. You mentioned that you work in that area as well. It’s fun and no day is ever the same, and you’re absolutely right. I think Bryce can attest when I start to feel like I understand the payment space and then our founding partner of the firm, Christopher Dryden, walks in the room all of a sudden, I realize I know nothing I Bryce, you feel that way much, but it’s humbling to be in the payment space.

Bryce Van De Moere (05:11):

It is. There’s a lot of major players and a lot of crazy behavior and so yeah, experience every single day. Elena, one quick question. Do you have any interaction with the merchants that you service or the secure

Elaina Smith (05:28):

Yeah, so although we don’t sell to merchants, we’re ultimately, we’re a wholesale iso. Let me back up a little bit and just say that we are a wholesale iso. We operate a little bit differently than most wholesale ISOs and that we insource a lot of the activities that they typically outsource to a processor. So where many other wholesale ISOs are really just reselling all of the services of a teis or a Fiserv, we let those processors only authorize and clear for us. And then we take everything in-house after that point and we do all of the billing in-house. We do all of the statements, we do all the merchant funding in-house, all the reserve balance management for reserves, et cetera. All of the risk, everything lives on this platform that we built. So our clients are ISOs and ISVs mostly, and then of course their clients are merchants.

Elaina Smith (06:22):

So we’re all using this platform. So the merchants will log in, see all of their activity. As it happens, the ISOs and ISVs can log in and see their entire portfolios. So the ISOs and ISVs are really the frontline to serve those merchants. But in this indirect way, we obviously the merchant agreements are with us and they’ll somehow, a lot of times we’ll hear from merchants and we’re happy to help merchants, but our position is that we are trying to provide a controlled environment for these ISOs and ISVs to maintain those relationships. They work so hard to get these merchants, so we try not to get in the way of that relationship. We do everything we can to support it, but we never want to intervene in that relationship. So things that you see in the industry like pushing down pricing changes, that’s not something that we are ever going to be involved in because that’s not the role that we see that we play. So we want to offer this protected environment. If you want to board business where you know that you can board it, it’s going to stay the way that you board it other than of course outside of interchange increases in assessments. We’re never going to push down to you and say, you have to price a merchant in this way and add 30 basis points because we didn’t make our number this month. That’s never going to happen here. So that’s what we’re trying to protect against for the clients that we serve.

Bryce Van De Moere (07:46):

I think that, and I appreciate that. I think that the majority of my questions are going to be a risk related because well as much insight as you can give me or are willing to give me into how a risk is assessed. Because dealing with a lot of the banks risk is just like some shadowy back office that nobody can get to that nobody can talk to. Only the attorneys are authorized, I guess to be the go-between for me and risk. So yeah, any insight I can get from you out of this is going to be very valuable.

Elaina Smith (08:26):

Well, I think the best starting point there when you’re talking about risk and you’re talking about when we’ve got this sponsor bank that’s involved in a merchant relationship, you have to understand the two types of risk, which are financial risk. So obviously we don’t want to have financial losses because first that’s going to affect us. We’re going to bear those financial losses. If for some reason we put ourselves in a position where we can’t cover those financial losses, then it’s going to fall on the sponsor bank and you rarely see that happen, but it has happened and that’s a very scary position for a sponsor bank to be in. So they’re always going to be in a position of trying to protect themselves from that financial loss situation where they are affected by that. The other one is reputational risk. They just don’t want to be associated with certain types of businesses because of their reputation, because of their brand, and then because of the regulatory oversight that it invites.

Elaina Smith (09:28):

CBD is a great example. How many banks have you seen that are, Hey, we are offering a CBD program. We’re new to the space. We’re going to throw out this program, and then six months later, hey nevermind. Because the regulators have come in and they are all up in their stuff and they realize quickly this is not something that they want to partake in. So you have to just understand those when you’re dealing with risk, you have to understand what is the risk that we’re trying to manage and how do we work with that kind of risk? How do we protect ourselves or mitigate against that kind of risk?

Jeremy Stock (10:07):

What percentage of your portfolio currently is high risk?

Elaina Smith (10:11):

High risk? I would say probably 20 to 25%. That might be high actually. And it depends on, everybody has a different perception of high risk. The high risk that we do is things like future delivery, travel, the typical car not present, e-commerce kind of stuff. We do quite a bit of auto warranty when a lot of people won’t touch that, but if it’s very well managed and we work with a group that knows exactly how to manage that kind of business and they’re very on top of it and we’re on top of it as well, things like that can be managed if you have the right tools in place to be able to manage them.

Jeremy Stock (10:54):

Elena, one thing you were talking about the CBD or space, A new ISO opens up and they want to go in and they’re all happy to get things going and the merchants onboard, et cetera. We get those calls three months later from the merchants.

Elaina Smith (11:11):

You know exactly what I’m talking about.

Jeremy Stock (11:13):

Yeah, they told us everything was fine and yeah, first it was raum and now it’s D. Right. It’s a very difficult space. And do you feel for the merchants, these merchants, they’re trying to just make a living, they’re trying to run their businesses and they need in 2024, if you can’t process credit cards, it’s really, really hard. It

Elaina Smith (11:33):

Is, and the unfortunate thing is that a lot of them will end up going to these alternate payment acceptance methods, which are kind of just circumventing the rules and they don’t know that that’s the way that it’s set up. They’re just trying to run their business like you said. And it’s not that they’re necessarily doing anything wrong, it’s that the regulation around it is so unclear and you get into this gray space of banks just don’t want to be involved in it. And I can’t say that I blame them because if you’re familiar with all of the regulatory environment for banks in the things that they have, the compliance lift for them is already so much and now you’re just adding more onto that, it’s not worth it at the end of the day.

Bryce Van De Moere (12:23):

Yeah. Jeremy, I’m going to hijack this now please, but if you don’t mind, because given us a lot of good stuff here. So one of the recurrent issues that I see with the merchants that I deal with is that there’s just a overall lack of education of these merchants. So a lot of the ISOs and a lot of the banks that I see, it just seems like as long as they get the merchant to sign something that attests to the fact that they read and understand the agreement and then they drop a hyperlink in there that will allow the merchant to access the terms and conditions, even though we all know that they never actually do that. So I just feel like, and I don’t know that they even know that they should, that anybody’s like, okay, hold up. I know that you’re ready to get out there and start making your millions, but you really need to understand exactly what it is you’re getting into. For instance, if you decide to make any change to your processing or what you’re processing, you need to inform us first to keep yourself out of the crosshairs of the card brands. And so I’m wondering what your opinion is of the need for more education with these merchants so they don’t get themselves in trouble so often. And what, if any, educational, what kind of education does secure ARD provide its merchants or I assume that would be in the context of just ongoing service of your existing merchants.

Elaina Smith (14:01):

Because we’re not direct to merchants. We really don’t do that part of it, but we don’t, some of these things, like if somebody is unhappy, if we are not providing the service to them that we say that we’re going to provide to them or they’re just unhappy with our service, why would I keep them here and charge them this liquidated damages and those kinds of things, that’s not a great look for us. It’s not great for our brand. So it’s disappointing to me that some of the companies out there do those kinds of things because you’re losing more than you gained in that circumstance. Exactly. As far as education, I do wish that more could be done. I think the reason we don’t have more of that I guess is because I don’t know whether that would come from the individual card brands. I don’t think the individual card brands do a great job not just about that kind of education, but even things as simple as restaurant, restaurant, chargeback, chargebacks are common When we have high tips, educate merchants how to combat against that.

Elaina Smith (15:17):

Things like pay at the table where they’re putting the tip in when the card is present, simple things like that. I don’t think they do the best job at educating merchants when I try to go find information. I like to write a lot of content on LinkedIn about things like this. It’s hard to find that kind of information. It’s hard to even get bulletins from the card associations about updates that they’re doing. We many times have to go through our sponsored bank and get them from them. There’s this disconnect of the availability of information and I don’t want to blame it on the card brands. I just don’t know where else it might come from the processors, but is it going to be in the processor’s best interest to disclose, Hey, we’re about to rip you off in these terms and conditions. You really should read them closely.

Elaina Smith (16:06):

Line 22. Yeah, I don’t know where that would come from to lead that charge. I guess we can help do that and we do try to do that and just act in the right way, do the right thing. That part is a no brainer. And we see a little too much, in my opinion, in our industry of people trying to take advantage of the exact thing that you’re talking about in the terms and conditions. They know that they’re not going to read them. They stuff ’em with all sorts of garbage. And then if somebody wants to leave because they’ve messed up their account in some way, they don’t let them just gracefully leave. They make a big thing out of it. And I just don’t think that’s right.

Bryce Van De Moere (16:53):

I appreciate that position. I mean, I would go further and say that the card brands have taken themselves completely out of the equation whatsoever. They just don’t want to be bothered. We only seem to hear from them when somebody’s messed up and they have something to say about it. But I guess the point I’m trying to make is just even the most basic stuff like how to avoid transaction laundering merchant, you do understand that you can only process what you’ve been approved for and if so, you

Elaina Smith (17:26):

Can’t accept a payment for a couch if you’re a convenience store.

Bryce Van De Moere (17:31):

Exactly. Or like

Elaina Smith (17:32):

A laptop

Bryce Van De Moere (17:33):

Or something.

Elaina Smith (17:34):

And I think that’s why agents in our industry have done so well because that is a personal connection to a merchant that they have a resource that they can go talk to, they can trust when they’re signing the terms and conditions. They can ask the agent, Hey, what do I need to know about this? So I think why the agent model has survived for so long because it’s that trusted resource and they have that person that’s a cliff note of this is what I need to know about getting into this relationship. And if I have a question about can I just run a blind return to a card for $10,000, is that going to be okay? They can call the agents and ask if that’s going to be a problem or not.

Jeremy Stock (18:16):

It really does seem like that education level does make sense at the agent level because the agent has a vested interest of maintaining that relationship. They don’t want their merchant that they just onboarded to be matched or to get a hundred percent reserve thrown on the account or anything of that nature. So you think there would be more at that level, but it is very true. It doesn’t seem to be happening a lot because again, Bry and I, we get these phone calls every single day. If merchants who they run their own credit cards through their brand new, they want to try it out and they just don’t know any better and they’re ending up getting these match lists, and we can talk about this soon, five years prohibition on processing for these mom and pop shops who many times, not always, but many times they just didn’t know any better.

Bryce Van De Moere (19:08):

And I would also comment that personally, I don’t think that anybody’s trying to take advantage of anybody. I just get the impression that a lot of these entities, they like to run very lean, and so they figure that as long as they have met the basic requirements of the card brands, which are the lifeblood of the industry, they feel like they’ve done their part. And why would they hire a whole new staff simply to just make sure that these merchants are actually before they sign on the dotted line, that they’ve actually read and understand anything. I don’t perceive anybody. They’re not going to bid against themselves, and you guys are all very risk averse and I respect that. So I understand why you’re going to try to stack the deck as heavily in favor of yourself as you can because at the end of the day, the merchant can just skate off and you’re left holding the bag. So

Elaina Smith (20:08):

It only takes one good bird like that to not want to have it ever happen again. So bidr done that. I wish it were only one for us, but they will do it and they’ll do it without blinking an eye. So we have to do everything we can to protect ourselves from that type of loss.

Jeremy Stock (20:28):

To that point, Elena, can you talk about what are some of the biggest hurdles right now facing wholesale, ISOs facing secure bank card? What are some of the biggest challenges that you guys have front of plate?

Elaina Smith (20:41):

So for us, I would say it’s just staying current with the things that are changing as far as payment acceptance. And also the biggest thing I would say right now is faster funding. Everybody wants their money right away yesterday before they batched out. So we are, that’s the nice thing about having our own platform that we control the merchant funding is that it’s fairly easy for us to plug in a different funding method. So real-time payments for example, the problem is whenever you add another payment method or funding method rather, it takes both sides. So it takes the sender being able to send and it takes the receiver being able to receive. So for something like Fed Now and real-time payments, you have to have both sides of that. So not all banks have a core that’s updated that can plug into that. So that’s on both as sending and the receiving side.

Elaina Smith (21:45):

So I think that’s challenge number one for us is to be able to fund faster because that’s what everybody is asking for. And then you talk about risk. So when we’re funding faster, you think about some of these instant batch outs and instant payments. You don’t have time to look at transactions and know whether this restaurant process the same kind of activity that they did every day prior for the last three years. You’re just assuming that this merchant, their activity is going to be similar to what they’ve done and that an employee has to come in and like you said, run their card for refunds or whatever. You don’t have time to do risk. So that timeline between merchants wanting their money and being able to pay them quickly is very challenging. That’s the most interesting thing I would say is that’s what we are constantly thinking about. How do we get faster? How do we get better? I feel like we’re already very quick. We run our entire risk across our portfolio in about an hour every day, which is pretty fast I think. But what we’re talking about is merchants want it in a second versus an hour, and so that’s a challenge.

Bryce Van De Moere (23:11):

How are you determining in cases where that assumption proves wrong and the merchant is actually now slipping in a bunch of prohibited transactions and I understand that the need for speed and you kind of have to shoot from the hip a little bit, keep up with them. How do you determine when a merchant has gone off the rails?

Elaina Smith (23:35):

So there’s a number of ways and tools that we use. This is, to be honest, I know the top level 10,000 foot view, okay, I am a risk person, I understand, but I’ll just tell you transaction size for example, average transaction size of course is something that we look at. Average batch size is something that we look at. Did they say that they were going to do a hundred dollars average ticket and now all of a sudden we’re up to a $5,000 average ticket? Did they say that they’re going to process this monthly volume and they blew that volume out in the first three days? There’s also tools that we have when you talk about things like money laundering and whatnot, there are tools that we have that will do that kind of research for us because we can’t possibly know. If somebody puts up a website and they tell us they’re selling widgets without ordering that item and receiving that item, we can’t possibly know that they’re actually selling widgets. And sometimes that is what we’ll do. If we think there’s something a little bit strange about something and they’re selling some kind of supplement, we’ll go on and order the supplement and see what we receive in the mail. But you have to rely on some of these other tools that are doing that research for you because we can’t possibly scour all of these websites and know exactly what they’re selling.

Bryce Van De Moere (24:55):

And who are you using to assist you guys in making these determinations?

Elaina Smith (25:01):

So for the services that we use, one of them is G two that’s out there looking at websites, and then our risk system is our own internal risk system that’s built into our platform and there are, I think 20 different queues of things that it’s looking for. We score based on how much did they strikes, how many strikes did they have. It kind of puts the higher the score, it puts ’em up at the top of our queue. I think it’s very similar to what everyone in the industry does, and those are the things that we go look at first and put eyeballs on those to be sure that everything is the way that it should be. Another thing that’s very common sometimes is a crazy number of authorizations where it might be car testing. So you have to set up limits unfortunately, to keep people from trying to go in, they somehow get a VAR sheet and they go start testing cards on that VAR sheet and then you get fined by the card brands because they know that that’s what’s happening.

Elaina Smith (26:05):

So we get punished because somebody has hacked into that merchant. So there, there’s all sorts of filters and oversight that you need to properly manage risk and just when you think you’ve seen it all, you see something else. It’s such an interesting world and time that we live in right now because I feel like we are always just half a step behind whatever it is that they’re doing. We’re always just trying to, okay, now they’re doing this, let’s run and cover this because you can’t imagine all the ways that they’re going to try to accept cards for something they shouldn’t be accepting cards for or just outright steal and do it a lot. The common thing I think right now is mostly the running refunds because pushed a card and they get that refund immediately. They go cash it out and the merchants left holding the bag for that refund. So that’s happening quite a bit right now.

Bryce Van De Moere (27:07):

Ask you, I’m going to ask you a question that I’m not sure you’ll be able to answer because I can’t answer it either, but do you have any sense as to how the card brands calculate the amounts of these fines? Because they seem to be all across the board and based on what it is, just like are you getting any

Elaina Smith (27:28):


Bryce Van De Moere (27:29):


Elaina Smith (27:31):

Some things that there are specific fees? For example, the card testing, the card testing, when that happens, there’s a specific per item fee in their assessments for that. So very, we know that we have a merchant that had 5,000 OS for card testing. We know exactly what we’re going to be fined for that. But then you’re right. There are some other things where have had, where one of the card brands has come to us and said, Hey, we see that this merchant is accepting payments for I, I don’t know what they were accepting payments for, but they found them accepting something that they shouldn’t be and there was a fine, I didn’t find that amount of the fine in the MasterCard or whoever it was Visa. I don’t know which one it was, but in their manual of fees, it wasn’t listed. Okay, $20,000 for accepting. You’re right. Sometimes it’s a discretionary thing, it seems from them as to how they come up with that finer fee and

Bryce Van De Moere (28:33):

They’re not telling you either.

Elaina Smith (28:35):

No. Yeah, I don’t know that there’s a schedule. I haven’t seen a schedule of fees at least as to how they come up with this, but our approach to things like that is, okay, we’ll take care of it, and the merchant’s gone yesterday and we move along. I never want to get into a battle with one of the card brands. It’s a fight. I’m never going to win. Let’s just be realistic. I am a spec on the bottom of their shoe. Whatever rules they have, I’m going to follow the rules. Whatever they tell me that I need to do to comply, I’m going to follow those things that I need to do. If we want to play in the world, we have to play by their rules, and I know not everyone agrees with that. They want to push back on certain things. They’re bigger than us. If I want to make my living in this space, then I need to respect the world that they’ve built and they have built the rails. I just operate on the rails, so I’m going to play by the rules.

Bryce Van De Moere (29:40):


Jeremy Stock (29:42):

A lot of truth in what you just said, Elena. That is very true. It is their world. Yeah. Yep. Elena, if I can run a scenario by you, something we’ve seen as well that’s related to this, and maybe you can explain how it happens between the iso, the wholesale ISO, and the ultimate decision to hold reserves. We have clients who call us and they say in essence, Hey, I’ve got a seasonal business and so my ticket, my volume, any given month is maybe low, but over a certain period, let’s just call it summertime, it’s going to jump up and it does jump up dramatically and all of a sudden they’re calling us because they’re upset because they’re getting a hundred percent reserves placed or high reserves, and sometimes those go on for a very long time and they’re saying, Hey, we’re trying to pay our employees. We’re doing these things. And it seems to relate Elena to what you were saying, which is you guys are trying to keep up with that constant change. But can you talk about a scenario like that where ostensibly this is a merchant who has onboarded and told them, Hey, I’m a seasonal merchant. You’re going to see a certain type of activity for most of the year, but at some point this is going to jump up dramatically, be ready for that. Is that being communicated? Does that make it to the wholesale

Elaina Smith (31:07):

Iso? That’s exactly what it sounds like to me is that there’s some kind of communication breakdown because that information, if they shared it in underwriting, it should be noted on the account. And so if we see something like that, like I said, we’d have an hour to run risk in the morning. So on the first day, if we don’t have time to communicate directly with that merchant and say, Hey, I see that you’re normally doing a thousand dollars a day and yesterday you did a hundred thousand dollars, might hold it for a day. If we can’t have a conversation with them about what’s going on until we can see some, what did you accept this for? Some contracts and whatnot, but reserving a hundred percent and holding onto that because it’s unusual, even though you expected it, it sounds like a communication breakdown. And sometimes just when these companies get so big and bloated, it’s hard for those kind of messages to follow along with the merchant profile so that the risk person understands it, the underwriter knows it and sees it in underwriting, but it needs to carry over to risks.

Elaina Smith (32:12):

So I love in our office that the risk person is across the hall from the underwriting person, and so she can go over there and say, Hey, I see that this is higher than normal, but we expected this, and they can have a conversation about that. But when you get to, you’ve got a hundred risk people working in queues, that’s when that kind of thing happens, when it just gets so big that it gets difficult to manage. And I hate for the merchants because it is their livelihood. They need that money to operate their business. They need that money to pay payroll. So I hate that they get stuck in the cross hairs of our own mismanagement because that’s exactly what it is. It’s a breakdown in our operational processes and it’s not. Okay.

Bryce Van De Moere (32:59):

Can you elaborate a little bit just on that one statement you made where you say we only have an hour to run risk in the morning? What do you mean by running risk?

Elaina Smith (33:08):

So we are at, we have a number of different risk cues. So we’re looking at things that, like I mentioned, the scoring. We’re looking at things that flag for a number of reasons, and so like I said, there are the high scoring merchants for that particular day that they had abnormal activity or scored for some reason. So we’re running down that list and seeing who flagged based on unusual activity. So when we get all of those transactions in for the day, we get them very early in the morning and we have more than an hour, but we are ready to look at it by 7:00 AM But by the time somebody is in here at eight o’clock, what we’re trying to do is accomplish next day funding using same day a CH, and that early window is nine 30. That’s the cutoff. So we have to submit our files by let’s say nine 15 or so to make that nine 30 window.

Elaina Smith (34:02):

So we have from eight to about nine 15 any given morning to review risk for the day. So it’s this balance, right? We were talking about faster funding and wanting to get merchants their money more quickly. Well, I would love to take all day. I could do a better job at risk probably and have fewer losses because we have more time to do that. But we’re trying to balance this need and demand for faster funding. So we’re always trying to do it in a quicker timeline and get those transactions as quickly as we can be able to review them and then turn around and pay them out to merchants.

Bryce Van De Moere (34:38):

What time zone are you guys?

Elaina Smith (34:40):

We’re on Eastern.

Bryce Van De Moere (34:42):

So you have to abide by the Eastern time zone?

Elaina Smith (34:45):


Bryce Van De Moere (34:45):

Yes. Okay. Do you know if the West coast has the same, do they have to get everything in by six 30 in the morning?

Elaina Smith (34:53):

Yes. I believe that those are universal. It’s run by nacha, so I believe those are the universal clearing house cutoff times.

Bryce Van De Moere (35:06):

Interesting. So while the West Coast ISOs need to move to the East Coast, if they’re

Elaina Smith (35:10):

Getting any sleep at all or be early birds, I don’t know what are the

Bryce Van De Moere (35:14):

Other that’s pushing it, but yeah. Okay.

Jeremy Stock (35:18):

Elena, can you talk about technology? How much of this is being addressed? I know Secure bank card is on the front of all this stuff. How is technology, has it become much more a bigger part of your job in particular, or maybe how these issues are being addressed? For

Elaina Smith (35:35):

Vanguard? It’s a huge part. Would say 30% of our spend right now is on technology. That’s how big of our spend is. We built our platform and had it complete and went live with it in 2020, and we thought that was silly to think that we were done with it. Then we have reinvested and reinvested and reinvested in even not just maintenance, but some really big overhaul projects because you have to at this point. If you are just using other people’s tools and not customizing your own, then where does that leave you in this market? You have to be doing something a little differently and differentiate yourself from everyone else, and that solves a problem. Of course, you can’t just differentiate for the sake of being different. You have to do something that solves a problem and be willing to invest in that. But I think the exciting part is because of the way that payments are so much more integrated now, and it’s software integrations, there’s so much opportunity right now if you do invest and you invest in the right things, there is unlimited opportunity in the world of payments to find success if you’re willing to do the work.

Elaina Smith (36:54):

So I think it’s a huge thing. I think if you look at some of these legacy processors and the platforms that they’re built on are archaic. It’s very clunky to try to operate on their websites and their platforms, and it makes our jobs very difficult. But on the same side of things, I respect that those platforms are very reliable. They have reliability, and that’s why they don’t want to change them because they can’t not be able to authorize a transaction. There is no downtime for them, A little bit of downtime for them is a complete failure. So I respect the reliability, but it’s also like something has to give because we can’t continue to operate on these clunky platforms anymore and feel like when we log into a website, we have to spin around on our hands three times and do five jumpy jacks just to be able to pull up a single transaction. That’s what it feels like when you log into some of these things.

Jeremy Stock (37:53):

Yeah, no, understood. I’m seeing where the term ISO is not even being used as much anymore. Everyone wants to be a FinTech, right? Yes. Everyone’s in FinTech now. What you’re describing seems to fall in line with that. Elena, we have not talked about match list. Would you like to talk about match list? Is that Yeah, that’d be great. Absolutely. Bryce deals with match list every single day,

Elaina Smith (38:21):

I’m sure. Yes. Audit. I don’t belong on it. Please help me. Is that the G of that conversation?

Jeremy Stock (38:28):

That does cover it. Exactly. Can you talk to us, Elena, about what Secure Bank, how does the match list play a part in what you guys do in terms of reporting and how risk is looking at that, et cetera?

Elaina Smith (38:43):

So generally, if someone comes to us and applies with us and they’re on the match list, we will not consider it until they have that resolved. Like I said, I don’t like to invite eyeballs from the card brands, regulatory eyeballs, and I think that’s just asking for that to happen. So anyone who has a problem like that first needs to go and resolve that. We do see every now and then, and I think this is becoming even more common, we see every now and then that a merchant is a legitimate merchant and the owner’s identity has been stolen and they end up on the match list for this reason

Jeremy Stock (39:25):

That’s happening all the time. That’s actually the one that I was going to ask you about.

Elaina Smith (39:28):

Yeah, we see that quite often and for that kind of thing, we will try to work with that merchant and work through that because it’s part of our every day at this point, we probably get a couple of applications a week where it is a legitimate business, but it is a stolen identity of an owner and it’s a fraudulent application for that reason. So we know it’s happening, and it’s a shame when that business wants to now go actually get credit card processing on their own and they can’t because of the match list. But otherwise, usually there’s a reason, at least in our experience, if they’re on the match list, there’s usually a reason that they’ve ended up on the match list. Understand that from our perspective, it’s not easy for us to put a merchant on the match list. We have to justify. We can’t just go get upset at somebody and say, you know what?

Elaina Smith (40:24):

I’m going to put you on the match list. You’ve really made me mad. That’s not allowed. That’s not a thing, right? Not a vendetta. So there are hoops you have to jump through and you have to justify your case to the sponsor bank that we really are justified in putting this merchant on the match list. So it’s not an easy thing to do. We only do it when we absolutely have to because we’re not just protecting ourselves, we’re protecting other ISOs and processors out there from hopefully not having to deal with the same merchant again and hopefully put them in the naughty box and then they can’t get out of the naughty box.

Jeremy Stock (40:58):

Yeah. Elena, I’m going to pause you right there real quick if you don’t mind. I apologize. You might’ve seen Bryce’s cameras went out, they get hot, they overheat, so I just turned them off. Let’s give it like 60 seconds. We’ll turn. We should be able to jump back in. Can I still talk though? Well, not yet though. Do I have to look at myself? Is that what you’re saying? God, and save it. Save it. I’ll turn ’em back on right now because this is an important conversation and I want to catch it. One second. I got to figure something out. These cameras are,

Bryce Van De Moere (41:35):

I think this is one of the longer ones actually.

Jeremy Stock (41:39):

Okay. I think we might be, oh no, come on.

Bryce Van De Moere (41:44):

There you go. There we

Jeremy Stock (41:45):

Go. Okay. So I apologize Elena about that, but if you guys, Bryce, did you want to jump in there or, yeah,

Bryce Van De Moere (41:51):

Actually, I’m happy to hear that at least with the secure bank card, there does seem to be a kind of checklist that’s being put in place before the decision is made. My issue has always been that I just feel like MasterCard has created this monster by basically implementing a reasonable belief standard, which could mean anything. And a lot of the times this determination is made without anybody actually even calling the merchant. So I’m just like, how do you develop a reasonable belief without actually talking to the accused before you shut ’em down? And so I’m wondering, like I said, it’s good to hear that there is a checklist that’s kind of mandated here. What kinds of, if you’re comfortable talking about, what kinds of things are you looking at before you make the decision?

Elaina Smith (42:46):

This is really pushing my pay grade here, and that’s fine. That’s fine. I do know that there is always a conversation with the merchant and it’s usually very easy to tell whether they have been caught doing something that they shouldn’t be doing or not. We do try to give them the benefit of the doubt, and if there’s any reason for us to believe that they are doing the right thing, we do try to work through that with them. But usually we have one of the best, I think our risk guy is just risk. People have to have, they have to have this built-in skepticism. They have to have this attitude of, they almost have a sixth sense of being able to sniff out risk. Risk people are the most interesting people because they have that sense of knowing whether somebody is doing something they shouldn’t be doing, telling you something that’s not the truth.

Elaina Smith (43:43):

And so usually in-house, we know very well whether somebody’s been caught doing something that they shouldn’t be doing, and that’s a conversation. There’s not really always a way to tell until you have that conversation with them. Sometimes it is blatant and it’s very obvious. Like I said, when we order something and it doesn’t arrive as the product that we ordered, that’s very obvious. I’m not sure that that’s something that would go on the match list, but that’s something that somebody would be terminated over. And like I said, this is beyond, I’m pushing what I should be talking about right now because this is beyond my expertise a little

Bryce Van De Moere (44:23):

Bit, and it is fine if you say that. Like I said, this is the world that we live in

Elaina Smith (44:30):

Now. Oh, I’m sure. Yeah. Super interesting.

Bryce Van De Moere (44:33):

Yeah, but going back to the identity thefts, those are the hardest, I think, to deal with and for the merchants to understand because yeah, they didn’t do anything wrong, but yet we’re going to punish you in the very unlikely event that someone’s going to try to double dip with this personal information. And so I’m wondering from my standpoint, because how can the merchant be best positioned to approach you to get picked up even though they’re a victim of identity theft and they’re on the match for identity theft?

Elaina Smith (45:10):

Identity theft? I think usually we’re just looking for a police report and evidence that there was an identity theft and proving to us that that was not them or that was not them operating that merchant account. And then we can proceed with having a merchant account for that merchant. Like I said, we might be pushing it as far as, I don’t know whether we have to do something with MasterCard when they are on the match list and now we’re going to process that for them anyways. I’m not sure if there’s any other steps we have to take. Maybe we have to notify our sponsor bank and say, Hey, this was a case of identity theft. They’re on the match list. We’re going to go ahead and process for them anyway. I’m not sure about that just because that’s not the world that I deal in, but I know that it is a case that we will consider because it’s just prevalent right now, and it’s usually pretty obvious with these identity theft cases. It’s usually a business that has very little online presence. They’ve never accepted cards before, and so someone will go out and just throw up this website and it’s very easy to do, and then they steal, they find the owners’ credentials and they steal that identity, and then they go pose as that owner. So it’s usually very obvious that it’s an identity theft case that you’re dealing with when you have that come in.

Bryce Van De Moere (46:34):

Yeah. Actually, I’m going to ask you another question that’s probably outside of your pay grade, but yeah, how is the DETERMIN determination made in the first place? And I know that’s a very broad question because there’s all different kinds of ways of stealing somebody’s identity, but how are you guys picking up on that if application or onboarding process that this is actually not the person that they say they are?

Elaina Smith (47:00):

So usually, and hopefully when, well, let’s start with the easiest way. The easiest way is to find that person and pick up the phone and actually call that person. Did you apply for a merchant account? Usually the answer that you get is no, and actually you’re the third person that’s called me today. But that’s interestingly enough, that’s something that a lot of people don’t do for whatever. They want to use all of their online tools, but they never want to pick up the phone and just call someone. So that’s kind of interesting. You’re totally a minority

Bryce Van De Moere (47:31):

Based on who I talked to.

Elaina Smith (47:35):

That’s great. Also, many times it’ll be flagged on their credit report and their credit will be frozen. Obviously, credit checks are a big part of what we do, and then we have other tools as part of underwriting that are verifying the information that they’ve submitted, that it all lines up with that person’s profile. So things like address and the information that they’ve submitted, date of birth, places they’ve lived before, the typical things that you see in trying to identify somebody’s or authenticate rather somebody’s identity. If something falls out during that process and something doesn’t line up, then it’s usually putting pieces together and you have one little thing that looks not quite right. Okay, now we have two little things that look like, and you’re just kind of putting together the trail of evidence, and you then get to the conclusion that, okay, this is an identity theft situation.

Elaina Smith (48:30):

We also used to have, like I said, we don’t go direct to merchant, but because we’re a payment processor, we used to have a link to our application online, so as a merchant apply now a hundred percent of those applications that came in were identity theft. So finally just took that down completely because that got a little old, and those people will call and they have the nerve to call, Hey, where are you with my application? Did you approve the application yet? And I need this particular kind of gateway and all sorts of, I mean things that most merchants don’t know, they really give themselves away. So it’s kind of interesting what’s happening in that space, and I really hope that we can have some tools that better help us stop that because it is a real problem. I think that authenticating identity of the business and the owner is one of the best and biggest problems to solve right now because it’s a hard thing to do.

Jeremy Stock (49:32):

Alina, it’s been wonderful having you on as a guest today. We really appreciate this conversation. Thank you for your patience through those technical issues as well. Would you mind, you want to leave our audience with some closing thoughts and also maybe how they can reach out to Secure Bank card if they’re interested in your services?

Elaina Smith (49:49):

Sure, sure. First of all, I appreciate you inviting me because I think these kind of conversations are super helpful and insightful because you are dealing with merchants in a much different way than I am, and I can’t appreciate your perspective until I know the things that you’re up against and the struggles that you have in trying to help those merchants. I think we all want the same outcome, but until we have conversations like these, it’s very hard to get anything done and be able to serve merchants in the way that they deserve to be served. So I appreciate you guys having this conversation and being as open as you have been in the things that you’re seeing. As far as Secure bank card, we are a wholesale iso. Like I said, we are trying to build a very protected environment for ISOs and ISVs that want to just board their business, have operational back office support, and be able to put that business somewhere where it’s going to be just left alone and not messed with.

Elaina Smith (50:50):

And I hate to say that, but that’s kind of the thing that’s happening in our industry is that we just want to process efficiently and be able to provide that operation support to you and not interfere in that relationship that you’ve worked so hard to earn. I myself am on LinkedIn a lot. I talk about things like many of the things that we’ve talked about here. That’s what I love to do on LinkedIn, so if you want to find me, that’s probably the best place to find me. I love engagement on any of the posts. Whether you disagree with what I say or you agree, sometimes I’m frustrated because I don’t get enough disagreement. I know certainly I have to be wrong sometimes, and sometimes somebody will private message me or something and say, Hey, I think you got this a little bit, not quite right. Hey, I appreciate that. It’s a learning process. Like I said in the beginning, I can’t possibly know everything about everything in payments, and that’s why I think it’s important to have these conversations so that my perspective isn’t the only perspective and I can kind of look through the lens of people that operate in different places or in different functions, but it’s been great being here today. I really appreciate this. Thank you so much for having me. Absolutely.

Jeremy Stock (52:01):

Likewise. Thank you, Elena. Thank you for listening to the very end of this episode. This has been The Payments Experts podcast, a podcast of global legal law firm. We have had with us today in Studio Senior Associate Attorney Bryce Vander Moore, as well as our special guest, Elena Smith, CFO, over at Secure Bain Card. Go look her up on LinkedIn. Elena, thank you so much. Have a wonderful afternoon.

Elaina Smith (52:25):

Thank you.

Jeremy Stock (52:26):


Speaker 5 (52:27):

Thank you for listening to this episode of the Payments Experts Podcast, a podcast of global legal law firm. Visit us online today at

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