The Green Sheet Online Edition
January 25, 2016 • Issue 16:01:02
The high-risk merchant services opportunity
High risk. We're hearing this more and more in the merchant services world. Simply put, it's an industry term that classifies types of business most processors will not, or are not able to support with traditional merchant services accounts. These businesses could be solid and lucrative customers, but for certain reasons (business classifications, bank sponsor restrictions, etc.), many processors are not able to write merchant accounts for them.
Over time, certain industries, due to their business type, may develop a reputation for high instances of fraud, chargebacks, non-delivery of products, etc. In most cases, businesses classified as high risk have a higher than normal risk factor tied to them. Of course, just because they're classified as high risk doesn't mean they don't need or want to accept credit cards through a merchant account. In fact, it's typically the opposite. And plenty of reputable processing partners in our industry specialize in high-risk merchant accounts.
In today's business environment, we've witnessed a continued uptick in the need for and opportunity around high-risk merchant services. Some would even argue that the high-risk marketplace is exploding right now. But, as with any specialized offering, there are considerations to be aware of as you develop a high-risk partnership and begin targeting high-risk businesses (merchants).
- Selling: If you have a high-risk customer, you will need to ask the right questions to position the business for success in terms of an account approval. And don't be afraid of the higher processing rates. The majority of legitimate business owners in this segment understand that their business requires a different rate structure.
- Process: Unlike today's traditional small to midsize business customers, the high-risk marketplace is highly specialized and somewhat antiquated in terms of the processes required to obtain an approval. Everything is a paper or manual, process, and typically an additional five to six documents are required for every account submission (to strive for approval), regardless of a merchant's monthly or annual volume. Approvals typically take five to 10 business days once the account is submitted (there's a 60 to 65 percent approval rate).
- Partnership: Whether you're a processor or an independent reseller, having a specialized partnership for high-risk merchant services is a must if you want to capitalize on a new vertical opportunity and drive incremental bottom-line revenues.
In the end, it's about opportunity and having realistic expectations. While ISOs and merchant level salespeople (MLSs) won't make the traditional 80 to 90 percent residual splits with high-risk accounts, there is a huge opportunity to earn a smaller percentage, but on a higher-margin business. For example, a typical approved high-risk merchant account would earn you up to 150 to 200 basis points.
The high-risk marketplace is growing. Existing and new ISOs and MLSs have a new opportunity, through partnerships, to expand their footprint into this targeted, vertical space ‒ and, at the same time, significantly increase bottom-line earnings. With specialization, dedication and patience, building a high-risk portfolio will only add value to your business.
Matt O'Shea is Executive Vice President of National Bank Services. He can be reached by email at email@example.com or by phone at 800-353-6686, ext. 2888.
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