All merchants accept payments in one form or another, and most merchants today are at least considering integrating NPPS into their financial arrangements. On the other end of the spectrum, NPPS lower the barriers for merchants to access financial services, making it easier to start and operate a small business, particularly in the e-commerce sector. These lower barriers to entry however can also create risks when merchants are not properly vetted. Globally, Payment Sector participants including providers of NPPS have been abused by or directly complicit with merchants who offer fraudulent or illegal goods or services, or whose business models pose reputational risks to financial institutions. These can for example include traffickers in narcotics who disguise their transactions as financial activity related to a supposedly legitimate small business. They can also include businesses that are legal in some jurisdictions but not others (such as gambling websites) and seek to accept payments from customers resident in jurisdictions where the business is illegal. Finally, they may include sites that are legal in many jurisdictions but that pose reputational risk, and that are therefore outside a financial institution’s risk appetite, or online marketplaces that do not thoroughly police their merchants and thus could themselves be abused by illicit actors.

Any factors—particularly intermediation, nesting, and the use of agents and affiliates—that prevent a financial institution from understanding exactly what merchants or what types of merchants it is serving when it provides a PPS, increase the risks. Risks may be higher in cross-border networks, as businesses may be legal in some jurisdictions and illegal in others, while customers can use the PPS to purchase services that would be illegal in their jurisdiction. Relying on third parties to conduct customer due diligence (CDD) on merchants can also increase risk if the relationship is not well-governed.