Helios Payments – Payments News and Information

Comparing EU and US Credit Card Processing in High-Risk Industries

In the world of high-risk processing, there are different rules and regulations for credit card payments depending on the region. In this blog post, we’ll compare two specific regions – the European Union (EU) and the United States (US) – to better understand how they differ from each other with regard to high-risk processing.

EU Credit Card Processing

In the European Union, high-risk processing is regulated by Directive 2015/2366 of the EU Parliament and Council, which aims to increase consumer protection when using payment services. This directive requires merchant processors to obtain express consent from customers before transferring funds, along with full disclosure of applicable fees associated with a transaction. It also requires payment suppliers to adhere to strict rules regarding data security and customer privacy throughout the entire transaction process. Additionally, companies must inform customers if their data is shared with third-party providers or used outside the scope of a specific purchase request..

US Credit Card Processing

In contrast to its European counterpart, credit card processing in the US is governed by national regulations set by The Fair Credit Billing Act (FCBA), which protects consumers against fraudulent activities related to their credit cards. This act does not require merchants to obtain specific authorization for a sale before transferring funds but rather provides customers with additional rights if unhappy with an item purchased on a credit card once received. Additionally, companies must provide customers with information about their refund policy and abide by all applicable federal laws regarding refunds within certain timeframes.

Key Differences between EU & US Processing Services

Although both regions have similar guidelines for protecting consumers during credit card transactions, there are some key differences that exist between EU and US processing services. Most notably, customers in Europe have more options available to them such as being able use different payment methods such as Apple Pay or Google Wallet while those in America do not currently have access to these services yet. Additionally, businesses in America may be subject to more stringent regulations when dealing with sales made over state lines than those based in Europe..

Understanding the varying regulations of different countries can help business owners make informed decisions when it comes to selecting a payment processor that best fits their needs when engaging in high risk industries. Despite any potential costs or added complexity involved with implementing new procedures or technologies that may come up during setup stages and beyond, it pays off in terms of protecting your business from potential fraudulent activity as well as building trust among customers who want assurance that their personal data will be handled securely at all times during a transaction process.

Exploring the Future of Credit Card Processing in High-Risk Industries

The world of high-risk processing is always changing, with new technologies and regulations popping up all the time. In this blog post, we’ll have a look at where the industry is heading and what it might mean for businesses engaged in high-risk activities.

Biometric Authentication

One area that’s expected to see significant growth in the future of credit card processing is biometric authentication. This technology uses a person’s unique biometric data such as fingerprint or facial recognition to verify identity and help prevent fraud when using payment cards. This technology can reduce instances of identity theft while also saving customers time as they won’t have to remember long passwords or enter personal information each time they make a purchase.

Artificial Intelligence (AI) & Machine Learning

AI and machine learning are two other technologies that are being used more frequently in the realm of credit card processing, enabling systems to identify potentially fraudulent behavior and alert companies accordingly. By leveraging large datasets, these systems can learn over time how to better detect authentic transactions from those deemed suspicious so businesses can ensure their customers’ payments are being processed safely and accurately.

More Secure Payment Methods

As technology advances, new payment methods are continually being developed to make transactions more secure for businesses and consumers. For example, near-field communication (NFC) technology utilizes radio frequencies between devices such as smartphones and point-of-sale terminals so customers can pay without even having to remove their cards or type in any information – providing additional safety against potential hacking or fraud attempts. Additionally, blockchain-based payments are another option slowly gaining traction within the high-risk processing space due to its transparency features which enable automated tracking throughout the process from start to finish.

In conclusion, there’s no doubt that financial institutions will continue investing heavily into research and development projects revolving around security-related matters when it comes to high risk activities like credit card processing – creating an environment where customers feel safe conducting business online while giving companies peace of mind that they’re complying with applicable regulations at all times..

Understanding Fees Involved in High-Risk Processing

Credit card high-risk processing is an area of the payment industry that involves handling customer data and money with extra caution. Businesses need to ensure they meet certain safety and security standards to protect their customers. As such, additional fees are often incurred when dealing with high-risk processing services. In this blog post, we’ll discuss the various types of fees associated with these services so business owners can budget accordingly.

Types of Fees Associated with High-Risk Processing

There are several types of fees associated with high-risk processing services. The most common type is the merchant agreement fee, which is charged by the payment processor for setting up and maintaining your account. This fee is typically a percentage-based fee that varies from provider to provider and is usually calculated on average monthly transactions or overall sales volume.

Another type of fee you may incur while using high-risk processing services is a transaction fee. This can be applied to each credit card transaction processed through the service and usually amounts to a certain percentage per purchase transaction or a flat rate.

Additionally, many payment processing companies also charge what’s called ‘non-Qualified Rate’ (NQR) fees for international transactions or ones deemed as “high risk” due to factors like a customer’s country of origin or type of credit card used for purchasing goods or services. NQR fees are commonly higher than standard rates as they are considered more likely to incur fraud or chargeback activity, so it’s important for businesses to be aware of this before accepting payments from customers located outside their home country.

Finally, there may also be other miscellaneous fees associated with high-risk processing such as setup costs, monthly maintenance costs, and late penalty charges if bills are not paid on time. It pays to read through all available information provided by your chosen payment processor so you understand what other potential charges might come into play during a normal course of business operations.

Benefits vs Risks When Using High-Risk Processing Services

While there may be added costs associated with using high-risk processing services, there can also be some benefits involved too – such as improved customer convenience when making payments online or through apps as well as fraud prevention measures already built into them. Ultimately it will depend on how much-added security your business needs in order for you to decide whether it’s worth taking on extra financial outlay in return for peace of mind when dealing with potentially risky transactions from foreign customers etc..

Profitability and Payment Processing

Profitability is the most important part of any business. It drives our business goals. To help keep business on track, we need to be analytical and accountable by keeping an eye on the income statement, balance sheet and cash flow statement.

The income statement shows the revenues from operations (sale of goods or services from continuing operations), cost and expenses incurred in connection with such revenues and the profit or loss resulting therefrom.

The balance sheet shows the financial position of a business, usually the end of a period (year, month, quarter), being a critical tool for any business.

The cashflow statement is important because the survival and success of any business is determined not by accounting profits alone but it’s ability to generate cash income in excess of cash outflows.

Coming back to payment processing and how it relates to profitability, we should keep these angles in mind:

industry type
protecting the business to improve long term profitability
expense management
AI and digital tools
new markets

High risk industries are difficult to underwrite for credit card processing. The acquiring bank takes on increased risk of losses due to chargebacks, potential fines from the card brands (Visa, MasterCard, etc) and reputational risk. The reward (profit) for the bank needs to be high enough for them to tolerate and manage the risk. As a result, high risk industries have higher fees for payment processing.

Generally, processing fees for all transactions will be higher, sometimes more than double that low-risk merchant accounts. We should be aware that it is a direct connection between the risk and return. As high-risk merchants we should expect higher revenue and profitability from our industry. Industry type profitability is important, and we need to keep this in mind, especially for business cycle, threats of new entrants, products, players (buyers and suppliers). Opportunities will appear if you are thinking for medium (2 years) to long term business.

Profitability is the blood of every economic activity. Every P&L has a source. When it comes to payment processing, as merchants, we need to balance short term cashflow with long term profitability. We need to look beyond the fees, and into what value we’re receiving from our payment processing partner. If I choose a payment processor purely because they are ‘cheaper’, only to have my merchant account terminated and funds held several months later because the processor I selected isn’t capable of handling high risk merchants, have I really made the profitable choice?

High risk processing profitability is based on the payments partner you choose. I use the word partner because human touch in this industry is very important. You should choose your payment processing service partner based on their experience, customer-oriented attitude, values, multiservice opportunities, and their level of experience.

Don’t search for short time revenues – look for long time profitability. It is important to distinguish between your sales volume (total revenues) and your end profitability. Look at your profit margin (how much money are you making from $1 in sales?). What is your profit margin? 10% 25%? 40%?

High risk processing fees vary widely bank to bank. Most merchants in high-risk industries will pay 5%-8% to process their payments. The good news is that good processing history can get you lower fees, lower reserves, improve business continuity and lower your risk.

So, keep an eye on your merchant account health by managing your chargebacks, using fraud tools and analytics. Work with banks that understand your industry, banks that understand how to manage the risk. Selecting a bank that knows high risk, even at higher near-term cost, will offer you better long-term profitability as long as you take care of your merchant account.

Have questions about which high risk bank is best for your business? Our experts can help you find the right bank. Let’s chat.

The Agent’s Guide to High Risk Accounts – Part 1

Why High Risk?

Most payment processing agents are fishing for deals in their own back yard. Low risk accounts from local stores, restaurants, gas stations, etc. are easy to find, but typically low margin. Its not uncommon to see just 20-30bps (0.02-0.03%) of margin on a low risk deal, and that’s before the agent’s split with the bank.

What most agents don’t know is that there is a whole world of high-risk, high-margin merchants out there, looking for help to find a ‘risk-friendly’ bank. On high risk deals, its typical to see 100-200bps (1-2%) of margin on a high risk deal. For the math geeks out there, that’s 70-180bps more than a low risk deal… in other words, high risk deals can be 3-10 times more profitable than low risk deals.

What is High Risk?

In payment processing, the term ‘high risk’ refers to the perceived financial, regulatory, or reputational risk for an acquiring bank. When an acquiring bank issues a merchant account, they are extending their risk. If, for instance, a merchant accrues chargebacks and then goes out of business, the acquiring bank is responsible for paying any outstanding chargebacks and fees.

High risk can be defined by the vertical. Some verticals are more likely to see chargebacks than others. For example, merchants in the following verticals would be considered high risk, due to the business they are in:

Nutraceuticals
Diet pills
CBD
MLM
Gadgets
Adult

High risk can also be defined by the billing model. Products sold on trial basis have some of the highest chargeback rates. When a product is sold on “trial”, it means the consumer purchases a sample for a small fee (usually $3-10), and then is automatically enrolled in a subscription to receive the product monthly for a higher price (usually $70-120 monthly). Consumers are often caught off guard by the subscription billing and call their bank to chargeback.

Finally, high risk can be defined by regulatory or reputational risk. Merchants selling restricted or regulated products, like CBD, vape, online gaming, firearms and the like are often considered high risk due to the regulations surrounding their business.

High Risk vs Low Risk

	Low Risk	High Risk
Profitability	20-30bps (0.20-0.30%)	100-200bps (1.0-2.0%)
Pricing	2-4% + $0.25	4-10% + $0.25
Location	Local. Restaurants, stores, gas stations and kiosks.	Global.
Deployment	Can be complicated and time consuming to deploy a POS.	Done in under an hour, unless a custom deployment is needed.
Longevity	Low risk accounts typically last until the merchant closes, or is offered a lower price from another agent.	High risk accounts are closed more often; usually due to chargebacks. Proper chargeback management can extend the life and profitability of these accounts.
Upsell Opportunities	Agents can generate additional profits by selling POS systems, but often these are given away for free or at cost to close a deal.	Profit from upsells, like gateway fees, chargeback management, 3DS, and fraud prevention tools can exceed the profit made from the merchant account.

Comparison of Low-Risk and High-Risk merchant accounts.

High Risk Challenges

This is one market where there are barriers to entry. To begin, you need a bank (or preferably many) that understands and accepts high risk merchants. Some main stream banks will say they can accept some high risk, but in the end, these deals always go south – and typically after weeks of underwriting and paperwork. So the acquiring partner you choose is critical here.

Chargebacks and terminations are the second biggest challenge. As mentioned earlier, high risk merchants tend to generate high chargebacks. If the chargebacks exceed the bank or card brand threshold, the merchant account may be terminated. However, with chargeback management in place, chargebacks can be kept relatively low, reducing the frequency of terminations and other issues.

High Risk Opportunities

As illustrated above, high risk provides much better ROI than low risk. As if a 3x-10x increase in your profits wasn’t enough, adding a service like chargeback management can actually generate more revenue than the profits made from the merchant account fees.

With the right high-risk banks and tools in your arsenal, your agency can ascend out of the low-risk/low-profit weeds and onto higher ground. Tools like chargeback representment, chargeback alerts, fraud prevention, and 3D Secure can not only add to your bottom line, but also stabilize your portfolio. Our chargeback management service is robust, easy to deploy, and commissionable. So is our 3D Secure fraud prevention service. As a Helios Payments agent, you have access to resell our chargeback and fraud prevention services, and immediate access to our squadron of 35 risk-friendly acquiring partners.

Is Your Chargeback Strategy Intelligence Driven?

It’s pretty clear to most merchants that the pandemic has caused disruptions not only in the health care system, but in the economy as well. More specifically, this new normal has created a breeding ground for increased instances of friendly fraud, which have been undoubtedly hurting the chargeback ratios of many merchants. Chargebacks are expensive, and terminated merchant accounts are even more so. This was best demonstrated by a Javelin study reported by Verifi, which showed that chargebacks and fraudulent transactions can eat from 13 to 20 percent of a company’s budget! This is why the details truly matter, and are not just good to have…

The increased adoption of ecommerce has been a clear trend in recent years, and it has been beneficial, but we need to remember that chargebacks do play a role in this industry shift. This is due to the sheer number of transactions, and the increased chances of a dissatisfied customer or an error on the side of the merchant.
This is why it is imperative to have a plan, because not having a chargeback strategy can result in financial losses as well as increased risk of your merchant account being terminated. And, as we’ll discuss in this article, it’s even worse if it’s not driven by analytics or intelligence…

The pitfalls of not using data to inform your chargeback strategy

Like in most things in life, the more uninformed you are about a topic, the more likely you’ll be to suffer from pitfalls and make rookie moves. So with this in mind, one of the worst things to do is base your chargeback strategy on speculation and feelings about what the root causes of the problem is. This is because fundamentally, you’ll be guessing on what caused the chargeback, and this may lead to implementing the wrong solution. Not to mention, guessing can also hurt your case at the bank when disputing a chargeback.

A JPMorgan study reported by Verifi clearly showed this, when they found that only 22% of merchants won the disputes that they represented. Most merchants know that during the chargeback representment process, you want to be as specific and concise as possible to get the bank on your side, so how can merchants eliminate guesswork?

Eliminate guesswork and missteps with data analysis

When you do inconsistent data collection, or worse, you don’t collect at all, you’re going to miss patterns. And this is especially damaging when you have usual suspects such as customers from a specific country, or customers that have certain attributes that could clearly be recognized with proper analytics.

Why using intelligence is crucial, especially today…

The rise of ecommerce and an increase in friendly fraud due to the pandemic has resulted in a swift increase in chargebacks. When using analytics, you’ll remove guesswork and know the who, what, where, when and why of the chargeback. If you know the specific details about your chargebacks, ie: the chargeback reason code, affiliate ID, affiliate sub ID, customer location, and customer BIN, you’ll be in a better position to spot patterns, and potentially predict future chargebacks and risky situations.

For example, if you notice a recurring pattern of chargebacks during specific seasons of the year, you can plan your strategy in advance, and not last minute.

The icing on the cake

By performing this kind of deep dive analysis into our chargebacks, we can uncover hidden opportunities to save money in other ways. Many e-commerce merchants use affiliates and affiliate networks to drive traffic to their offers. If we just look at metrics like EPC, rebill rate and refund rate, we miss something. Specifically, chargebacks by affiliate. By examining chargeback ratios by affiliate, and cross referencing the data with our other metrics (i.e. gross sales, rebill rate, refund rate), we can find affiliates that are increasing cost and risk by sending low quality, chargeback ridden traffic. Its time to kick those underperformers to the curb.

Bottom line, analytics can also give you a better sense of who your most profitable customers are, and this will allow you to tailor a marketing strategy that has a lower risk of losing money in the long run…

Important analytics for the best chargeback strategy

So now that we understand the importance of analytics and its benefits, which ones are the most important to create the best chargeback strategy? It may vary depending on specific business operations, but here are a few examples and brief explanations of ones that are typically the most important:

The MID

This stands for the Merchant account ID, and you need to know what the account was that was used to process the transaction.

Affiliate ID

Affiliate ID is a unique ID passed by your affiliate or affiliate network. If you use affiliates for your product, you’ll want to know which affiliate it was, and if there’s a pattern. Your network may also pass the affiliate subID, which shows which unique affiliate sent the customer to your offer.

Product details (Product ID, transaction size, transaction type)

By analyzing information about the products being charged back, we can see products, price points and even billing models that may be contributing to chargebacks. Knowing the product name and SKU number isn’t just a good piece of data to have, it can also help you spot trends within your inventory. Is the same product or similar products causing chargebacks? If so, check the product quality and marketing surrounding it.

Chargeback reason code

Visa and Mastercard have their own reason codes, so you need to know them in order to fight the chargeback effectively and have accurate evidence. Additionally, looking at reason codes for all your chargebacks, you may find other factors that are contributing to chargebacks. Are chargebacks high for a particular code, like ‘cancelled recurring transaction’? Perhaps your customer support team needs to be more liberal with cancelling customer subscriptions. Are chargebacks trending higher for ‘merchandise not received’? Maybe your fulfillment house is not shipping packages out in a timely manner.

The country

Are you getting chargebacks from the same country or a specific area often? Well, the only way you would know this is through detailed analytics! And if you do notice a pattern, maybe it’s time to stop doing business there, or at least adjust your billing strategy in regards to doing business there.

BIN

The BIN, which stands for the Bank Identification Number, is the beginning four to six digits on a customer’s debit, credit or charge card. These numbers are important, because they identify which financial institution is issuing the card, and can help you work with the bank to match transactions to the cardholder and also prevent fraud.

The subscription cycle

If you sell a subscription, knowing at what point during the billing cycle the chargeback happened is important. This is because it can help you predict whether similar customers in the future may do the same thing, and hurt profitability.

Specific dates

Knowing when the transaction was processed, and when the chargeback was filed, are both key pieces of information that you will need to know, and present when doing chargeback representment. Viewing analytics and changes in company policy, products, marketing strategy and other factors can help you pinpoint the practices causing chargebacks for your company.

Summary

In short, the world has gotten more complicated, and this couldn’t be more true in the payments space. Today, analytics and intelligence is more crucial than ever, because complexity requires visibility in order to accurately understand what’s truly going on. The growth of online payments has had its perks, it has come with increased instances of fraud and payment disputes.

Back then, merchants didn’t have payments online with all its complexities, so they could afford to be “blind” when it came to specific data points. You’d probably get more of a pass back then, because at that time barely anyone was even collecting this data.

But this clearly isn’t the case today…
Sure refunds are a normal part of any business, but getting a chargeback is a dreaded situation that no merchant wants, and must try to avoid. This is due to increases to their chargeback ratio, the time wasted doing the dispute, the business costs, and on top of that the chance of losing the dispute and paying a fine to the card issuer! In short, you need to automate the process as much as possible to avoid human error, and use intelligence to guide your chargeback strategy!

Confused on where to start? We’ve got you covered.
Click here to learn more about how HeliosPayments can help make your chargeback strategy more intelligence driven…