Don’t Shun High-Risk Sellers—Manage Their Commerce Better, Experts Say

For some processors, opportunity can abound among high-risk merchants shunned by acquirers that fear the potential losses. But losses can also abound if these relationships are not well-supervised, warned a panel of experts Tuesday afternoon.

“There’s a balance between how much risk we’re going to take on and how to price the customer,” said Josh Fochek, vice president of sales at the big Atlanta-based processor Global Payments Inc. “If you can find the right level of risk, there’s a lot of money to be made.” And the more distant the processor is from the high-risk merchant, the harder it is to manage that risk, added Fochek, who spoke as part of a panel discussion at the Northeast Acquirers Association annual meeting in Atlantic City, N.J.

That means the more middlemen there are between the acquirer and the merchant, the more the risk of loss to fraud, high chargeback rates, bankruptcy, and other causes can escape notice, he cautioned.

Merchants that deal in what may be semi-legal goods, or goods legal in some states but not others, have always drawn a skeptical eye, and for good reason, some panelists warned. “If [merchants] don’t pass the legal risk, it’s very difficult to go to the next category,” noted panelist Fadi Cheikha, chief executive at U.S. Alliance Group. For that reason, he said, USAG looks at legal risk before anything else. “The last thing we look at is financial risk. The first is non-negotiable,” said Cheikha.

What can mitigate risk in a portfolio of high-risk sellers? The banks involved can be a critical factor, some said, advising the more banks, the better. “You want to work with an [independent sales organization] that has relationships with multiple banks,” advised panelist Naomi Mastera, business development manager at the processor NMI.

Pricing the client properly is also critical. “There’s a balance between how much risk we’re going to take on and how to price the customer,” said Fochek, who noted that balance can be underestimated. “There’s a high-side revenue opportunity,” he said. Yet another important factor, he advised, is to enable multiple payment methods, including  automated clearing house transfers and “even crypto.”

Indeed, Fochek and NMI’s Mastera see high potential for cryptocurrency to help manage risk. “The best thing about crypto is, there’s no chargebacks,” said Mastera. For that reason, she added, “we’re going to see more POS systems accepting crypto.” That prediction for digital currency was echoed by panelist Jason Noto, counsel with the law firm Polsinelli. “It’s coming,” he noted after Mastera’s remarks.

But there’s no substitute for diversity in preventing too much risk accumulating in one payment stream, noted Mastera, who added NMI works with more than 200 processors around the world. “Make sure the gateway has fraud-prevention tools,” she said.

In the end, the group agreed, there’s no substitute for diligence. “To mitigate the risk, you need to follow all the regulations, follow the rules,” said Mastera.