In early March 2023, Silicon Valley Bank (SVB), the 16th largest bank in the United States and the largest bank by deposits in Silicon Valley, filed for bankruptcy, sending shockwaves throughout the financial industry. SVB, a cornerstone of the region’s economy for decades, fell victim to a classic bank run – albeit one with a digital twist. One U.S. lawmaker called the panic the “first Twitter-fueled bank run” after social media posts rapidly spread the news that SVB suffered from a high proportion of deposits that were either uninsured or in hold-to-mature securities. With so many VC firms, startups and mature tech companies rushing for the door, the bank was unable to cover all the withdrawals and went under. 

Ultimately, the government stepped in and rescued SVB in what was a bailout in practice, if not in name. But an enormous amount of damage had already been done, and the impacts of Silicon Valley Bank’s failure were felt not just in the valley but across banking and finance as a whole – including payments. This scenario highlights the importance of diversification and security in payment processing – an industry in which far too many companies only have a single banking partner and, as a result, are susceptible to a single point of catastrophic failure. 


Diversification – the Key to Resilience

One of the major takeaways from the failure of Silicon Valley Bank is the importance of diversification for payment processors and independent sales organizations (ISOs). Diversification refers to spreading risk across multiple areas to reduce the impact of any single event. It has long been seen as important for ISOs and processors on the merchant side, as a more diverse portfolio is a more desirable one with a higher sale value. But the SVB saga demonstrates that the acquiring side of the business isn’t as secure as it may seem, and diversification there is necessary to truly minimize risk. 

Diversifying Payment Processors and Acquiring Banks

Many ISOs work with multiple payment processors, but not all. And of those that do, many are still a step removed from the acquiring banks their processing partners work with, and may have significant overlap they’re unaware of. An ISO or payment processor that relies on a single acquiring bank is vulnerable to disruptions if that bank experiences issues. Worse still, it could lose its ability to provide services entirely if the banking partner goes under, rendering merchants unable to transact and cutting off revenue entirely until a new partner can be arranged.

Strong diversification of acquirers not only helps ensure an ISO has a wide set of services to offer merchants, but it also ensures that even if one processor or bank goes down, an ISO’s entire business won’t grind to a halt as a result. At worst, some merchants and a portion of revenue will be impacted. At best, with the right systems, the switch can be flipped to a new acquiring bank or processor as quickly as possible, returning things to business as usual with minimal interruption. 


ISO Risk Management and Fraud Protection

In addition to the importance of diversification, SVB’s collapse highlights another important aspect of banking, finance, and payments – that it’s a risky game. In an already uncertain and relatively unstable environment like payments, any additional pressure from large black swan events like the run on Silicon Valley Bank can have catastrophic consequences.  Proper risk management strategies help ISOs and all players in the industry soften the potential fallout from surprise one-off events they can’t control by ensuring the risks they can control – like onboarding, fraud detection, and IT security – are controlled. 

Protecting Against Fraud

The risk of fraud is ever-present in the payments industry, and ISOs must have robust fraud detection and prevention systems in place to handle it. Fraud can take many forms, from stolen credit card information to identity theft to dispute abuse and beyond. It can cause significant financial losses for merchants, ISOs, payment processors, and every party in the payments chain.

To protect against fraud, ISOs must use multi-layered fraud prevention systems, and the more options available, the better. These systems can include artificial-intelligence-based scanners like Kount that analyze transaction data and detect anomalies in real-time, rules-based filters, 3D Secure authentication, which adds an additional layer of security to online transactions, and more. Fraud can never be completely eliminated, but with the right mix of modern detection and prevention tools, it can be caught and stopped in the vast majority of cases.

Improving Underwriting

Another type of fraud that represents a significant risk to ISOs is merchant fraud. Merchant fraud occurs when applicants for payment services falsify their documentation or intentions to circumvent filters or access better pricing. Merchant fraud is often as simple as lying about details on an application, but it also comes in a number of other varieties, including:

  • Bust-out fraud, where a merchant operates legitimately – possibly for years – with the intention of committing one big fraud at the end before disappearing
  • Transaction laundering, where an approved merchant processes transactions on behalf of an unapproved one
  • Identity swaps, where a merchant uses a stolen identity to apply for services
  • Business model swaps, where a merchant misleads an acquirer about how or what they sell

The key to mitigating the risks associated with merchant fraud is better, more thorough, more consistent underwriting. While bust-out fraud is extremely difficult to stop, the other types can all be mitigated by going through each merchant’s application with a fine-toothed comb. Modern underwriting and risk monitoring tools are ideal solutions for improving the consistency and depth of underwriting checks, reducing the time it takes to underwrite an application from days or weeks to a matter of minutes. 


The Complications of Diversification and Risk Management

The Silicon Valley Bank collapse is a good reminder of the importance of diversifying business interests and managing risk, but neither are new concepts. So, why do so many ISOs and payments companies struggle to properly diversify or protect themselves from risk? The simple answer is complexity. 

It isn’t historically cheap or easy to gain and manage multiple acquiring partners. The reporting demands alone make residuals and tracking a nightmare, and that’s to say nothing of the process of finding, inking deals, and integrating with additional acquirers, to begin with. 

It also isn’t easy or cheap to underwrite merchants properly – often taking days in the most complex cases. Time is money, making underwriting not only a major bottleneck in the onboarding process, but an expensive one at that. As a result, many underwriting departments take shortcuts that expose them to unnecessary risk. 

Catching and stopping fraud – especially in card-not-present situations – was once beyond the control of ISOs. If fraud wasn’t caught by the merchant in-store or detected by the card network, it got through. It was simply accepted as a reality of doing business and a cost that couldn’t be avoided.

Today, there are tools available to solve every one of these problems, but far too many ISOs aren’t using them yet. There are omnichannel full commerce systems that enable an ISO to integrate with hundreds of processors and dozens of acquiring banks with ease. There are automated underwriting systems that can perform complete and consistent due diligence on merchants in a matter of minutes and perpetually monitor accounts for suspicious changes. There are anti-fraud systems that can check every single transaction against databases with millions or even billions of data points and automatically block fraudulent payments. Payments technology is so advanced today that there is no real reason for ISOs or any other payments company to lack critical diversification or risk management. 



The failure of Silicon Valley Bank in March of 2023 highlights the importance of diversification and risk management for the entire payments industry, including ISOs. Diversification through the expansion of acquiring banks and payment partners can help reduce the impact of any single point of failure. Robust risk management and fraud prevention systems are essential to maintain customer trust and protect against financial losses. Luckily, thanks to advances in payments technology, companies today can access everything they need with very little friction – in some cases, even from a single solutions provider.


NMI full commerce enablement is a complete merchant service solution that offers ISOs, PayFacs, and ISVs everything they need to sell flexible processing services, manage risk, and streamline operations all in one place. 

NMI’s payment gateway integrates with over 200 processors. If an ISO, PayFac, or ISV’s processor or acquiring bank goes down like SVB did, they can be up and running with a new one extremely quickly. The NMI gateway also makes it easy for ISOs to sell an entire suite of value-added services that unlock new revenue sources and make merchants safer and more successful. 

IRIS CRM (an NMI company) provides reporting and productivity tools that make it easy to integrate and manage dozens of processing partners. Automated reporting, residuals management, and onboarding enable users to connect the CRM to their various processors and manage all the most important operational tasks from a single, centralized point of control. 

Agreement Express (an NMI company) offers fully automated underwriting that makes plugging the leaks in risk management fast and easy. Agreement Express Merchant ScanXpress performs 100+ checks in as little as a minute, identifying red flags and providing underwriters with a fully risk-scored report. MonitorX keeps an eye on merchants constantly in the background and catches any changes in their operations, KYC, or AML status that could indicate a problem.

To find out more about how NMI full commerce enablement can help your ISO or payments company diversify your acquiring partners and manage risk better, reach out to a member of our team today.