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Friday, December 19, 2008

Credit Card: Transaction Risk

Transaction risk is the risk to earnings or capital arising from problems with service or product delivery. This risk is a
function of internal controls, information systems, employee integrity, and operating processes. Transaction risk exists in
all products and services.
A bank’s success in credit card lending depends in part on achieving economies of scale. Credit card operations are
highly automated, have a large transactional volume, and require strong operational controls. Aggressive growth has
the potential to stretch operational capacity and can cause problems in handling customer accounts and in processing
payments.
To control transaction risk, a bank should maintain effective internal controls and use comprehensive management
information systems.
Examiners assess transaction risk by evaluating the adequacy of credit card application and processing systems and
controls. They consider the volume of accounts managed (on the books and securitized), the capabilities of systems
and technologies in relation to current and prospective volume, contingency preparedness, and exposures through the payment system.


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