As a result of Operation Choke Point, several banks abruptly changed policy and now refuse to process payments for members of business categories targeted by the Federal Deposit Insurance Corp. and the Department of Justice. Affected merchants have found little recourse. The Green Sheet recently interviewed Payscout Inc. Chief Executive Officer and founder Cleveland Brown, who provided practical advice payment pros can offer to affected merchants.
The Green Sheet: What should merchants look for in managed-risk processors?
Cleveland Brown: There are three key things a merchant should look for:
First, merchants should identify whether a processor is a registered member with the Visa network. This is easy to do on the Visa Global website where all registered members are published, and it ensures the company is properly vetted and sponsored by a reputable financial institution.
Secondly, merchants should look at every prospective processor's website to ensure the vertical they are doing business in is referenced and supported.
Next, talk with the processor. Discuss the vertical and challenges faced. It should be a transparent conversation, which will help with getting the business on the right path to being properly set up, supported and in compliance.
GS: What qualities make a merchant high risk?
CB: We prefer to label these businesses "managed-risk," because we believe risk can often be monitored and properly managed. However, there are certain qualities that warrant higher risk awareness. For instance, flags go up when a business has a higher chargeback ratio or higher product return/refund numbers than a traditional retail company.
One way to determine whether a vertical is a managed-risk industry is to review the governing policies and procedures. The more complicated these regulations are often coincides with greater risk. For example, the collections industry is an essential service, but how they collect is highly regulated.
Card-not-present (CNP) industries tend to fall into the managed-risk category, too, because card associations see transactions without a physical card shown, as riskier. These companies also generally have consumer-friendly policies, making it easier for the consumer to say, "Hey, that wasn't me!" – a form of "friendly" fraud.
GS: What steps should a merchant take when dealing with problematic banks?
CB: A merchant should always return to the three steps mentioned earlier. This will take 99 percent of the guesswork out of finding a processor who can help.
Merchants sometimes misunderstand the position banks take when it comes to fraud, so finding a managed-risk ISO can also help. It's [the ISO's] job to understand the bank's position on risk, screen the merchant, and serve as the intermediary to help the merchant work through the risks and the blanket policies the banks have.
It's also important to determine why the answer is no. Sometimes, a situation can be remedied, and sometimes it can't. For example, if you are denied for poor credit or a fraudulent history, it could be tough to find another processing provider. However, if you are dismissed for other reasons, you should try to understand the reason why, or find someone who can help you understand it.
GS: How can a merchant limit excessive chargebacks?
CB: Every single merchant should always be concerned with customer service. It should be the number one priority, especially in CNP transaction models. This means the merchant uses every possible means to provide stellar customer service, including phone, chat, email and solid business tactics.
Next, all merchants should ensure their product and service messaging and company policies are extremely clear. Tell customers upfront what your communication policies, as well as your refund and cancellation procedures are. Tell them what each procedure does and doesn't do and what they are getting or not getting. A lot of merchants don't understand the importance of this step or how it will impact their chargeback rate.
Along with communicating policies, point-of-purchase terms and conditions must also be clearly spelled out when the purchase is made, after a customer clicks a submit button, on electronic receipts, etc. Merchants should also have a comprehensive understanding of the regulatory policies and procedures governing their industry. This will help them stay in compliance and minimize expensive mistakes.
Finally, there are many technology products available to merchants to help them minimize risk. CNP merchants should definitely utilize these technologies to guard their transactions.
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