High risk, high return. It is the creed of high risk merchants and their payment processors who, more than ever, are facing scrutiny and review from entities such as the Consumer Finance Protection Bureau (CFPB) and Federal Trade Commission (FTC).
It was well-discussed Tuesday in the session entitled ‘Art and Science: The Ever-More Difficult World of Processing for High Risk Merchants,’ at the Transact 16 trade show and convention at Mandalay Bay.
There are a number of dangers that high risk merchants and their processors face: possible financial loss, risk of reputation or potential harm to consumers to name a few.
But there are also dangers within those dangers.
1. Legal Defense Expense
You’re a credit card processor with a merchant who has run a foul of the law. A lawsuit ensues with your company named, even though you have done your due diligence and are exonerated of any wrongdoing, the legal expenses can be substantial.
“A merchant or a processor can spend a lot of money explaining, defending and auditing their company,” Said Behnam Dayanim of Paul Hastings, LLP, who was a panelist. “There is a significant financial component to it.”
2. Reputational Risk
It’s no secret there can be reputational consequences for high risk merchants and their payment service providers. It goes with the territory. However, what merchants want to avoid at all costs is reputation issues with the major players (acquiring banks) and federal regulators, such as the CFPB and the FTC. Those are two powerful agencies with long memories.
3. Complacency in Risk Monitoring
This is an important one for ISOs and payment processors, who board and keep tabs on a merchant for the first 3-4 months.
“You need to secret shop,” said Heather Peterson, CEO of the National Merchants Association and also panelist. “The three months after a merchant is boarded is the time when they think they’re not being watched.”
The Best Underwriting Solutions for High Risk Merchants
In 2014, the Electronic Transactions Association — with the help of industry professionals such as payment processors, credit card issuers and acquiring banks — compiled the first edition of the ETA Guidelines on Merchant and ISO Underwriting and Risk Monitoring, a free PDF download. Each panelist agreed it should be required reading for merchants, particularly those involved with high risk industries.
In addition, Instabill merchant account managers can offer a free consultation and are always available for advice for the life of the merchant partnership. Reach out to us at 1-800-318-2713 or be clicking the live chat option below.