Kevin Mendizabal, Director of Financial Institutions at Frates Insurance & Risk Management, believes EMV (Europay, Mastercard and Visa) safeguards aren't enough to protect the U.S. payments community from fraud. This includes acquirers, ISOs, payment processors, facilitators, gateways, and other merchant services providers. He pointed to online, card-not-present (CNP) transactions in particular, noting that CNP merchants "are still going to be liable for the loss from stolen cards or counterfeit cards."
Mendizabal noted that fraudulent charges for CNP merchants have soared in the last two years. "The way our insurance policy is designed is to respond as a safety net, just so a merchant cannot be put under and made bankrupt because they were hit with a large claim of fraud," he said.
Frates began in 1924 and specializes in insuring the payments industry for all types of liability, including fraud, data breaches, and chargebacks. It is part of Acrisure LLC, the 13th largest national insurance broker in the United States, Mendizabal said. Begun as a single business location, Acrisure has grown today into a national company with 170 locations and over $1 billion in annual revenues. Before joining Frates, Mendizabal was an underwriter for AIG's financial institutions division.
By focusing on the payments industry, Frates can customize policies to address Payment Card Industry (PCI) Data Security Standard (DSS) compliance needs. According to Mendizabal, in the majority of cases brought against payment processors and ISOs by the Federal Trade Commission and Consumer Financial Protection Bureau, financial damages could have been covered had the companies been properly insured.
Payments expertise also facilitates communication. "When I talk to a client who either has an existing insurance broker or agent that he is working with, and he is just so frustrated trying to have his insurance put in place, they know within 30 seconds that I speak their language," Mendizabal said. "We have experience to align those requirements that are either posted by the PCI Council, a bank or a payment processor to exactly what their needs are."
Mendizabal said Frates has a policy for just about every payments-related need, including insurance on chargebacks and cyber transactions. For example, Frates offers the Uncollectible Chargeback insurance policy, which pays ISOs for chargeback losses when a merchant is unable to pay. It also offers Web Merchant Guard, which protects individual merchants from charges stemming from fraud for CNP transactions.
"I consider us a one-stop shop in that we offer every type of insurance that a company needs," he said. "We cover their first-party costs and any liability that they would have. And when I say liability, I mean being sued for damages. We put that in place for the banks, the ISOs, the payment processors ‒ anyone who is contractually required to have that in place, and that is pretty much one of the main policies a company wants to see in place."
The company also provides coverage to payment facilitators seeking to do business beyond U.S. borders. "We have clients that are international, as well," he said. "Because we are part of Acrisure, it gives us the opportunity to offer insurance either to internationally based companies or companies with international operations or merchants that are outside of the U.S."
Mendizabal said Frates also helps its customers grow. "What I see for the future for Frates and our involvement in the payments industry is not just being an insurance broker that offers policies, but also understanding our clients' needs to generate revenue," he said. "And that's what really gets me going ‒ putting the solutions together for them, knowing I can help leverage insurance for my clients to help their business grow and as a revenue stream."
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