By Jeffrey I. Shavitz
Charge Card Systems Inc.
If you are like the majority of merchant level salespeople (MLSs) I speak with, you are focused on selling traditional merchant processing services. However, given the competitive marketplace, have you ever considered selling to nontraditional and high-risk merchants?
What is high-risk processing? We have all heard the term "high risk" for years, but do you really understand this market, the nuances that differentiate it from conventional processing and the profitability opportunities?
High-risk merchant processing continues to evolve within the payments ecosphere. Companies that were once considered traditional are now considered high risk and vice versa. With emerging technologies, new merchant industries are being born. Payment processors, banks, acquirers, issuers, the major card brands, loyalty companies, Payment Card Industry Data Security Standard-compliance companies, and other players within the payments sphere need to find their fit within the industry.
Credit card processing companies play a significant and important role. They are the conduit between high-risk merchants and the card brands. They provide real service and value to online stores and retail merchants.
The industry is fluid. Applications like Apple Inc.'s Apple Pay continue to reinforce the ubiquity of the payments marketplace. Although Apple Pay is currently focusing on traditional retail merchants, we must anticipate that these new solutions will become apparent in the high-risk credit card space in the near future.
Apple isn't interested in the payments industry. Apple is interested in selling more iPhones. Its senior executives understand that joining the payments space will do just that. Ten million iPhone 6 series sold on the first day of the launch was an incredible achievement. And Apple Pay is one of the most innovative features of this new model.
Payment processors are facing significant challenges with risk underwriting and determining which merchants to accept. High-risk and hard-to-place merchants cover a variety of industry types, including the relatively new market of electronic cigarettes, debt collection, the adult industry and hundreds of other vertical types.
Other high-risk industries include sports information, nutraceuticals, escort services, pharmaceuticals, travel and vacation properties, ammunition stores, collection agencies, medical marijuana, herbal supplements, medical discount plans, dating services, and many online stores. There are hundreds of others industry verticals, but this provides a framework of some of the business types.
Even the federal government is getting involved with high-risk merchant accounts with the launch of Operation Choke Point. Launched in 2013 by the United States Department of Justice, Operation Choke Point is investigating banks in the United States and their business dealings with payment processors, payday lenders, and other companies believed to be at higher risk for fraud, money laundering and terrorist financing.
However, not all high-risk merchant accounts are under scrutiny. The term "high risk" or "hard to place" is not a negative reflection on a business. High-risk merchants could be public or private companies whose chief executive officers have good or bad credit. Certain industries are placed into a different underwriting bucket than that of your local neighborhood restaurants or dry cleaners, where risk and chargeback ratios are significantly lower.
Having spent the past 10 years involved in the high-risk industry, I've learned from speaking with many industry experts that MLSs haven't embraced the opportunities in the high-risk space. My thought for MLSs: don't stop selling to your core merchants; however, try committing 10 to 15 percent of your time cultivating new relationships in the high-risk market, where profit margins are greater. Such a combination will round out your portfolio.
I, like many of you, started in the traditional space. I wanted to share my thoughts about this marketplace. It may be synergistic to your selling efforts to help complement your day-to-day work and help grow your income.
Jeffrey A. Shavitz is the founder of Charge Card Systems Inc. that a few years ago sold to Card Connect. Prior to CCS, he was an investment banker in the Mergers & Acquisitions Department of Lehman Brothers working on financial transactions. In the past, he served on the First Data ISO Advisory Board and currently is active with The Green Sheet Advisory Board. Jeff founded Alternative Merchant Processing which focuses only on non-traditional and high risk merchant accounts. For more information, visit www.ampworldwide.com or he can be contacted at firstname.lastname@example.org or 800-878-4100.
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