Navigating the High Risk World AN AGENT S GUIDEBOOK H E L P I N G Y O U R B U S I N E S S S U C C E E D ETA HIGH RISK WEBINAR THURSDAY, MAY 16, 2013 Speakers: Heather Petersen, CEO National Association (866) 509-7199 Ext. 100 hpetersen@nationalmerchants.org Lara Schenk, VP Operations National Association (866) 509-7199 Ext. 3066 lschenk@nationalmerchants.org 1
Agenda TOPICS TO BE DISCUSSED What is High Risk & How Has it Changed? What makes a merchant high risk? Who determines a merchant s risk level? What can Agents & expect? Q&A Alternative Processing International Aggregation TPP/PSP Risk Management Underwriting Fraud/Risk prevention Q&A WHAT IS HIGH RISK? WHAT FACTORS MAKE A MERCHANT HIGH RISK? with increased risk of fraud or chargebacks 2
Visa Defines Specific SIC Codes SOME REQUIRE VISA HIGH RISK MERCHANT REGISTRATION SIC CODE DESCRIPTION 5962 Direct Marketing Travel Related Arrangement Services 5966 Direct Marketing Outbound Telemarketing 5967 Direct Marketing Inbound Telemarketing 7995 Betting, Lottery Tickets, Casino Gaming Chips, Off-Track Betting, & Wagers at Rack Tracks 5912 Drug Stores & Pharmacies 5122 Drugs, Drug Proprietaries, & Druggist Sundries MasterCard Defines Specific SIC Codes SOME REQUIRE VISA HIGH RISK MERCHANT REGISTRATION SIC CODE 4814, 4816, & 5967 5967, 7273, & 7841 7955 & 9754 DESCRIPTION Telecom ecommerce Adult Content (videotext) Non-face-to-face Gambling 5993 Non-face-to-face Tobacco Product 5912 & 5122 Non-face-to-face Drug Stores & Pharmacies, Drug Proprietaries, & Druggist Sundries 9399 State Lottery 3
Special SIC Codes REQUIRE ADDITIONAL SCRUTINY WHEN UNDERWRITING SIC CODE 4814, 4816, & 5967 5967, 7273, & 7841 7955 & 9754 DESCRIPTION Telecom ecommerce Adult Content (videotext) Non-face-to-face Gambling 5993 Non-face-to-face Tobacco Product 5912 & 5122 Non-face-to-face Drug Stores & Pharmacies, Drug Proprietaries, & Druggist Sundries 9399 State Lottery SIC CODE DESCRIPTION 5962 Direct Marketing Travel Related Arrangement Services 5966 Direct Marketing Outbound Telemarketing 5967 Direct Marketing Inbound Telemarketing 7995 Betting, Lottery Tickets, Casino Gaming Chips, Off-Track Betting, & Wagers at Rack Tracks 5912 Drug Stores & Pharmacies 5122 Drugs, Drug Proprietaries, & Druggist Sundries Sponsor Bank Credit Policy A MORE DEFINED SCOPE OF HIGH RISK C A R D B R A N D S S P O N S O R B A N K S A C Q U I R E R S CARD BRANDS SET THE RULES Certain SIC Codes require additional registration, monitoring, & maintenance SPONSOR BANKS CREDIT POLICY Often opt out of processing for higher risk merchants instead of extending additional required resources for the registration, monitoring, & maintenance. ACQUIRERS MUST FOLLOW BANK RULES Acquirers must abide by their Sponsor Bank s credit policy & prohibited list, often times MUCH more extensive and defined than the few Card Brand SIC Codes. 4
WHAT IS HIGH RISK? WHAT FACTORS MAKE A MERCHANT HIGH RISK? with increased risk of fraud or chargebacks Could be result of: Merchant s industry Payment terms Ticket size Volume Product offering Business credit score Personal credit score How payment processed When settlement occurs CNP Previous processing history Bank balances + more THE SILVER LINING EVEN HIGH RISK MERCHANTS CAN PROCESS Sponsor Banks may allow certain Acquirers to board higher risk merchants Not all high risk merchants are bad The reward may outweigh the risk = $$ Strong portfolios can handle an occasional high risk merchant Long term merchant processing relationships 5
High Risk Processing Poll WHAT HAPPENS TO HIGH RISK APPLICATIONS? Q&A ANSWERS TO FAQ S POST YOUR QUESTIONS TO THE CHAT BOARD 6
INTERNATIONAL PROCESSING ALTERNATIVE PAYMENT PROCESSING Foreign doing business in U.S. EX) Overseas Tech Support Must Register in U.S. Must Settle USD Abide by Regional Card Brand Rules U.S. offering services to other countries EX) Weight Loss Products Opens doors to new clientele & higher revenues Some regions specialize in specific merchant types Must register to do business in that country Could result in additional taxes & Bookkeeping Additional expense of setup Financial stability concerns of other countries Must settle in that country s currency Alternative methods / Gateways Typically can only offer Visa & MasterCard Funding delay Still have to abide by Regional Card Brand rules Banks can be more stringent than in U.S. Fees may be higher AGGREGATED PROCESSING ALTERNATIVE PAYMENT PROCESSING selling products or services they do not own Works well for some Nutra products Shares risk management & monitoring Simplifies the underwriting process Can be lucrative Must be managed properly TPP must be financially stable Must monitor closely & shadow underwrite Risk can outweigh the reward 7
HOW UNDERWRITERS DO IT UNDERWRITING HIGH RISK Complete Underwriting Package: Signed Application Clear Copy of Owner s ID/Passport Articles of Incorporation Financial Statements Bank Statements Processing Statements Business Plan & Pro forma (new biz) LEVEL 2 UNDERWRITING ADDITIONAL INFORMATION REQUESTS Accuracy of business information and corporate documents Compliance with website standards Trustworthy, legal, and legitimate business model Terms & Conditions Cancellation policy Previous processing history 8
RISK MANAGEMENT ADDITIONAL PARTNER SUPPORT MECHANISMS Monitoring Services Using Bank s Gateway Implementation of Fraud Prevention/Detection programs Screening of customer Chat Boards/Rooms Bank Card is a Small World HIGH RISK REQUIRES EXPERTS SPECIAL SKILL SET FOR UNDERWRITING & RISK MANAGEMENT Find a good high risk processing partner Special skill set required for underwriting & risk management Improper underwriting causes problems for agents AND merchants Ongoing risk monitoring is not optional 9
IS MY MERCHANT HIGH RISK? WHAT YOU & YOUR MERCHANTS CAN EXPECT DO: Expect to undergo a thorough underwriting process when submitting a high risk deal. DON T: Delay in getting requirements back to underwriters quickly. DO: Check to insure your merchant meets the Bank s credit policy of acceptable merchant types. DON T: Disguise your merchant s application in order to get it approved. DO: Expect underwriting to make a personal phone call to your merchant. DON T: Submit your merchant to multiple banks. DO: Obtain the reasoning if your merchant is declined. DON T: Expect underwriting to disclose personal information on the merchant. DO: Put your package together and double check for accuracy before submitting. DON T: Expect underwriting to do your job as the sales agent. DO: Know that some deals are just plain bad and you should walk away. DON T: Expect every deal to be approved. RECAP: HIGH RISK SOME FAQ S My Merchant s SIC Code is one that is defined by the Card Brands as High Risk The acquirer is required to enroll the merchant in the Card Brand Registration program before processing begins My Merchant doesn t meet my Bank s credit policy of acceptable merchant types If the merchant type violates your bank s credit policy, DO NOT submit the application, instead locate a partner acquirer that specializes in the handling of this higher risk merchant. My Merchant was terminated by a previous processor As long as the merchant did not violate any Card Brand rules, they may still be able to process. Sometimes merchants are terminated because they do not meet the Sponsor Bank s credit policy criteria. 10
Q&A ANSWERS TO FAQ S POST YOUR QUESTIONS TO THE CHAT BOARD STILL HAVE QUESTIONS? CONTACT US (866) 509-7199 WWW.NATIONALMERCHANTS.ORG THANK YOU FOR YOUR TIME! 11