It may not be fair to say that high risk merchant account processing is getting more and more difficult (even though we’ve made that very claim often in recent years).
It may be more accurate to say, however, that the difficulty in getting high risk merchant services is the byproduct of providers (such as Instabill) and acquiring banks continuing to take more precautions in boarding merchants in industries characteristic of escalated fraud rates and chargeback frequency.
At least that’s the latest news with U.K. merchant processing.
Forced added security?
There is a game-changing regulation that will directly affect high risk merchant account processing.
According to the revised Payment Services Directive’s (PSD2) strong customer authentication (SCA) regulation, merchant services providers and acquiring banks will need to examine their merchants’ fraud rates and reassess whether the merchant fits their collective profile. Under the new EU regulations effective in September 2019, e-commerce merchants may be subject to added security measures contingent upon their fraud rates:
- Transactions higher than 30 euro may be subject to two-factor authentication depending on the fraud rates of the acquiring bank.
- If the acquirer’s fraud level is lower than 0.13 percent of sales, transactions of 100 euro may be exempt of two-factor authentication, with a sliding scale of 250 euro for a fraud rate under 0.06 percent; and 500 euro for instances of fraud below 0.01 percent.
Acquirers that board merchants with high fraud rates are wise to collaborate with them to reduce those rates by September, or they will be subject to imposing two-factor authentication on purchase that fit the aforementioned structure.
It is all in the defense of fraud.
Possible effects of the SCA
Several different effects are possibilities as a result of the PSD2 regulation:
- More checkout abandonment: The big challenge of the SCA and fraud levels over 0.13 percent of sales and higher is shopping cart abandonment. It is a fact that enhanced security measures for online transactions, such as 3D secure, often tend to result in a consumers abandoning purchases when faced with such hurdles.
- Higher processing rates: It is also possible that, in order to buffer any losses, the acquirer may increase a merchant’s processing fees or offer tiered pricing for merchants. In turn, this may force a merchant to shop other acquirers.
- Merchant incentive: There is a flip side, however: The SCA regulation may serve as an incentive for merchants (and acquirers) to make a more concentrated effort to reduce fraud rates, thus maintaining a more frictionless checkout experience for consumers.
Are merchants vetted for fraud rates?
Indeed they are, as much as PSP underwriters are vetting for details such as chargebacks, flawed credit and sketchy processing history. There are a handful of industries that see more fraud than others:
- Tech support: Recently we reported on a dubious trend of hackers posing as tech support merchants who hack into a consumer’s computer and deliver a message, such as ‘Your computer has been hacked. Please call 1-800-555-0000.’ Those consumers who call the number are tricked into paying a hefty sum to have the proper (bogus) security measures installed.
- Online dating: Online dating is a haven for friendly fraud. One example is a less-than-loyal spouse who uses a dating service for infidelity. When found out, he claims his/her credit card has been stolen or hacked and files a bogus chargeback claim (ironically called friendly fraud). On the other hand, some subscribers to dating services will claim the service failed to deliver what it advertised (even when no guarantees are given), and will file a chargeback.
- Multilevel Marketing: Nefarious multilevel ‘marketers’ are after those buy-in fees from consumers who join on, usually in the range of $499. Some marketers disappear and others simply don’t deliver on promises of a new, healthy income stream.
Truthfully, however, those industries are hardly alone — no industry is safe from fraudulent tactics.
High risk merchant account processing by Instabill
Instabill has provided high risk merchant account processing since the dawn of e-commerce, and has European and international banking partners in place that help prospective merchants through the application approval process.
Instabill merchant account experts pride themselves on taking an individual interest in each merchant. Our relationship, however, does not end with an approval — our merchant account managers remain with merchants as consultants for the life of the merchant account.
Have a conversation about the possibilities today at 1-800-530-2444.
