Organisations working within what are termed high-risk business sectors typically find it a particular challenge to secure card acceptance services from the major banks. That’s largely because these banks believe that the business models of these companies will lead to fraud and reputational damage. Steve Wilson, managing director at Allied Wallet Europe, writes
The term, high-risk, is often applied by banks to businesses in sectors that have historically attracted higher than average problems. More often than not, though, it is not the product or service being offered that is the major issue for the banks, it’s the business model. However, if the sales proposition is clear to the consumer, and is supported by the highest quality customer service and distribution, potential risk can be kept to a minimum. However, if it is handled poorly – if the product offering is vague or misleading, for example – it will lead to confusion for customers, complaints and increased risk.
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The risk itself could be financial – a higher incidence of fraud or disputed transactions, for example, leading directly to more chargebacks, fines and sanctions. Equally, it could be reputational. This is typically the case where there are groups which have entrenched issues with the products being sold; where there is the possibility of an unforeseen event occurring, or an inability to distribute or make available products already sold to customers.
Banks are likely to shy away from such businesses because of the possibility of being adversely affected by any reputational damage incurred. Fundamentally good businesses that have suffered such issues in the past therefore often struggle to find banks willing to take them on. Sometimes a specific incident, a distributor going bust, for instance, leading to delivery problems and customer complaints can result in rejection by the incumbent bank and make it difficult for the merchant to find an alternative option for their payments processing.
To minimise problems, the sales proposition needs to be clear; the customer should understand what they are paying for, how much, and what to do if they have any questions or issues.
The business may be otherwise sustainable but the reputational damage is such that it may nevertheless struggle to find another payment services provider willing to take it on. So what’s the answer – how can these organisations repair the damage caused by incidents like this and find a legitimate means of selling their goods?
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By GlobalDataAn alternative approach
That’s where pure play payments processing providers can play a key role. Unlike many of the banks, the most flexible and versatile of these organisations are often prepared to take on high risk businesses and provide them with payment services. But why is this and how exactly do they achieve it?
The short answer is that often they have a clearer focus on and understanding of businesses within the high-risk sector. They understand the factors that raise the risk and that are associated with the business models of these organisations and they have the experience and expertise to help them deliver payment processing to their customer base while at the same time helping to lower that risk.
Enhanced due diligence during the onboarding process will typically be the first step payments processing providers take. Generally, this will involve using both automated and manual systems to analyse the risk history of the merchant in more detail and using a raft of industry data sources to on-board merchants more quickly while boosting their customers’ level of reassurance and comfort with the service provided. Enhanced due diligence may be a one-off process but providers will also need to continually refresh their understanding of the merchant’s business model and the vertical sectors it operates in and keep fully up to date with best and worst practices in those industries.
They can be still more proactive, of course, helping to further reduce the merchant’s risk levels while also increasing customer trust in a range of other ways. This could involve assisting in redesigning the website to ensure that the service and sales proposition offered is as clear and compelling as possible; helping to keep engagement levels high and churn levels low, or it could be about increasing the amount of outbound calls made to customers to ensure that any issues are identified early.
All of this in turn helps to ensure that customers are getting the products or services they have purchased and that they are happy with them, in that way minimising the chances of issues occurring. It also acts as an early warning system, alerting the provider promptly if it does see a problem arising. A good processing partner will use their many years of experience to ensure the merchant has ‘best in class’ service which reduces risk, increases customer satisfaction and ultimately leads to higher revenue.
This has to be an ongoing monitoring process of course. Risk management has to continuously be aware and keep track of emerging threats. There has to be a balance between understanding and managing the threats so as to safeguard partners and customers, but also maximising the opportunities for a legitimate sustainable organisation to flourish regardless of the sector in which it operates.
If the business is legal, sustainable and transparent, it has a right to trade. At Allied Wallet, before we engage with an organisation, we would typically ask questions like has the company got a genuine market, is it truly transparent and does it have a good customer service model set up? If the answer is consistently yes then we can work with the business to get the right processing solution for them.
