Definition:
Risk assessment is the process of identifying, analyzing, and mitigating potential risks that could affect business operations, financial stability, or regulatory compliance.

Contextual Explanation:
In the payments industry, risk assessment helps businesses evaluate fraud risks, compliance gaps, and financial vulnerabilities. It includes periodic audits and real-time monitoring.

Why It Matters:
Effective risk assessment prevents financial losses, regulatory penalties, and security breaches. It strengthens operational resilience and ensures regulatory adherence.

Example:
A PSP conducts an annual risk assessment to evaluate potential fraud threats and updates its security protocols accordingly.