ISOS and agents don’t need to shy away from these mer­chant ac­counts


Amer­i­cans made 33.8 bil­lion credit card trans­ac­tions in 2015 with a value of $3.16 tril­lion, up $6.9 bil­lion since 2012, ac­cord­ing to the Fed­eral Re­serve Pay­ments Study 2016. The num­ber of credit card pay­ments grew at an an­nual rate of 8%, the high­est growth rate of any pay­ment type the Fed­eral Re­serve stud­ied.

Credit cards are more pop­u­lar than ever, so ac­cept­ing credit cards is ob­vi­ously crit­i­cally im­por­tant for mer­chants. But for those mer­chants con­sid­ered high risk, be­ing able to process and ac­cept credit card pay­ments is chal­leng­ing. Of­ten these mer­chants strug­gle to find a mer­chant ac­count provider that will do busi­ness with them.

For ISOS and agents, high-risk mer­chants could be a lu­cra­tive mar­ket and a few providers, in­clud­ing Pay­ment Cloud, Inc., have even spe­cial­ized in work­ing with high-risk mer­chants. Other ISOS and agents ser­vice a few high-risk niches. How­ever, many ISOS and agents are scared away by the reg­u­la­tory and fi­nan­cial threat that high-risk busi­nesses present. But with a bit of ed­u­ca­tion and a lot of due dili­gence, an ISO or agent may want to re­con­sider reach­ing out to high risk mer­chants.

What is a High Risk Mer­chant?

Whether or not a mer­chant is high-risk is typ­i­cally de­ter­mined by the mer­chant’s in­dus­try and their fi­nan­cial his­tory. Cer­tain in­dus­tries are sub­ject to strin­gent reg­u­la­tions, whether from the Oc­cu­pa­tional Safety and Health Ad­min­is­tra­tion (OSHA) or the Fed­eral Trade Com­mis­sion (FTC), and pose a higher reg­u­la­tory risk. These in­dus­tries in­clude haz­ardous waste clean-up firms, eci­garettes, and the adult en­ter­tain­ment in­dus­try.

Even those mer­chants that have perfect credit, no com­plaints with the Bet­ter Busi­ness Bureau, and a stel­lar record of cus­tomer sat­is­fac­tion can be la­beled as high risk due to reg­u­la­tory con­cerns.

Fi­nan­cial risk may be due to a high level of charge­back’s, re­funds, and re­turns; high lev­els of credit card fraud; com­pa­nies that have irregular high ticket sales such as fur­ni­ture stores; and com­pa­nies with bad or non-ex­is­tent credit his­to­ries or that lack col­lat­eral.

A mer­chant with a charge­back ra­tio that ex­ceeds 2% is typ­i­cally con­sid­ered high risk. A charge­back, re­gard­less of whether the mer­chant won or lost, con­trib­utes to the charge­back ra­tio.

There’s no stan­dard def­i­ni­tion of what con­sti­tutes a high­risk mer­chant, lead­ing pro­ces­sors to in­di­vid­u­ally de­ter­mine if a busi­ness is high risk. “The most con­ser­va­tive pro­ces­sors look at com­pa­nies that we on­board ev­ery day as high risk but that we view as low risk,” says Lou Hon­ick, CEO of Host Mer­chant Ser­vices.

From Low Risk to High Risk

Low risk mer­chants are those that process trans­ac­tions in per­son, such as re­tail mer­chants and restau­rants. About 20% of Host Mer­chant Ser­vices’ busi­ness is with high-risk mer­chants.

It didn’t start out that way, says Hon­ick. The firm in­vested in on­line mar­ket­ing and be­gan gen­er­at­ing a lot of leads from high-risk mer­chants. Rather than con­tin­u­ally turn these leads away, Hon­ick de­cided to be­gin work­ing with high risk mer­chants, first in the web host­ing in­dus­try.

“Gen­er­at­ing leads is ex­pen­sive, and leads are pre­cious,” says Hon­ick. “If mer­chants are com­ing to you, you don’t want to pass up that busi­ness even if you make a smaller per­cent­age of the over­all rev­enue.”

Hon­ick’s team takes the mer­chant ap­pli­ca­tion and works to get the ap­proval. The key to ap­provals is work­ing with a va­ri­ety of bank spon­sors, he notes. “Dif­fer­ent bank spon­sors work with dif­fer­ent mer­chant types in the high-risk space so hav­ing a broad se­lec­tion of part­ners means you’re more likely to mon­e­tize the leads you get,” says Hon­ick.

That ap­proach is very dif­fer­ent than in the low risk space, where ISOS and agents may pre­fer to de­velop deep re­la­tion­ships with only one or two part­ners. “High risk is all about op­tions,” notes Hon­ick.

Be­fore Tak­ing the Leap

Shawn Sil­ver, Vice Pres­i­dent and Man­ag­ing Part­ner for Pay­ment Cloud, has al­ways fo­cused on high-risk mer­chants. Be­ing able to thrive in the in­dus­try re­quires a keen un­der­stand­ing of the mer­chants busi­ness model, your port­fo­lio, and the reg­u­la­tory en­vi­ron­ment those mer­chants do busi­ness in, says Sil­ver. “If you man­age your busi­ness prop­erly, it’s a good busi­ness.”

But it’s also a busi­ness ISOS and agents need to do their home­work in. Sil­ver recommends that ISOS and agents take a very deep dive into the high-risk busi­ness, in­clud­ing con­sult­ing with the ac­quir­ers they work with and their own le­gal coun­sel. Sil­ver says that Pay­ment Cloud has not been chal­lenged with find­ing ac­quir­ers to work with. Since Pay­ment Cloud in­curs any risk, it’s a mat­ter of mak­ing the busi­ness case to ac­quir­ers.

Sil­ver also recommends that ISOS and agents start slowly.

“Build your high risk mer­chant busi­ness up over time, learn­ing as you go,” he says. “You want to un­der­stand the dos and don’ts of the SIC codes you may de­cide to ag­gres­sively pur­sue.”

Within the high-risk mer­chant mar­ket, Hon­ick warns ISOS and agents to be wary. “There are mer­chants that don’t stand a chance of ap­proval due to bank­ing reg­u­la­tions but they will ap­ply to ev­ery ISO and agent they can find on Google,” he says. “They are des­per­ate, and they will hound you.” Some of these cur­rently “un­touch­able” mer­chants in­clude cannabid­iol (CBD), med­i­cal mar­i­juana, and off­shore tech­nol­ogy sup­port.

But over­all, Hon­ick and Sil­ver both be­lieve that there are op­por­tu­ni­ties for ISOS and agents will­ing to take the steps nec­es­sary to ef­fec­tively work with mer­chants that pose greater fi­nan­cial, reg­u­la­tory, and even rep­u­ta­tional risk.

You do need to have the fi­nan­cial where­withal though to ad­dress prob­lems, col­lab­o­rate with reg­u­la­tory au­thor­i­ties, and work through proper le­gal chan­nels, Sil­ver adds.

“Re­mem­ber, high risk mer­chant ac­counts are not the Wild West,” says Sil­ver. “If you do right by mer­chants and have the re­sources to rec­tify any prob­lems that oc­cur, it’s a win/ win sit­u­a­tion.”

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