The Past, Present and Future of CBD

I am writing these words, looking back one year ago. Thinking of the beautiful moments with my love ones, happy days with smiling faces😊. I remember also moments that offered me new things to accomplish and other challenging activities saved on my to do list. When I am saying past I am referring to the period before COVID, and I want to tell you a little story about how are we as individuals and what we can do to improve ourselves.Basically we are all in the same game. Threats, opportunities and rules; and we are the only ones who will decide the right way for us. What makes us different is the way we are doing things, the way we tackle challenges, the ways we can adapt and grow. 

CBD is a great evolving market that continuously adapts to consumer requests, trying to offer the best products and solutions to meet the market’s demands. But what is the market demanding? And more importantly at this point how can CBD merchants adapt quickly to offer and get the best? 

Looking for just 30 seconds at the chart below,  you will see that CBD started in 2014 from $108M up to $845M in 2019, $1.1M in 2020 and is projected to grow to $1.9M in 2022.

A quick conclusion here from 2 points of view: the investor and the merchant. The investor has found a place where he needs to have his money – we are talking of a growth of  37% in 2020 vs 2019 / 33% in 2021 vs 2020 and 18% in 2022 vs 2021. The merchant on the other hand, must consider how to improve his operations and assemble the systems and organization to maximize his success.  So now we are watching a great movie, where we are the actors and we can do something. We can run our CBD business effectively. We can have the best payment processing solutions, chargeback monitoring, 3DS service, suppliers and partners, to prepare ourselves for growth. And this is something significant because the trend is that the growth rate will decrease (2020 37% / 2021 33% / 2022 18%). Time is of the essence, and the time is now!

We are what we are and we adapt to life in the end as it is. In some cases the adapting process can affect us more or less depending on how we understand the change and the most important adversary is the person in the mirror. We can choose to face the challenge this market presents head-on, or site on the sidelines and watch as other companies grow their share in this emerging market.

As Big Tom Callahan said in the movie Tommy Boy, “You’re either growing or you’re dying… There ain’t no third direction.”

Given the relatively new legislation surrounding the CBD industry, credit card processing solutions are the most critical piece of the puzzle. Have a quick look at the figures below and think, really think of what could be. Think of what your business, your future and the future of your organization could be with the right payment processing solution, the right systems in place. So put in the time and grab your share of the CBD market.

Become a Baller with Affiliate Networks

Chances are you’ve heard of affiliate marketing. Maybe you’ve even tried setting up your own affiliate program. The appeal of affiliate marketing is that it allows you to leverage independent marketers to promote your product, and only pay when a sale is made. The challenge of building your own affiliate program from scratch is getting a large number of quality affiliates to run your offer.

Enter the affiliate network. An affiliate network is simply a company that connects affiliates with offers, like yours, to promote. They can and should be more than this though.

An affiliate network should help you position your offer so that it is attractive to affiliates. Remember, you’re competing with other offers in your niche and country. If your offer doesn’t convert or payout as well as other offers, you’ll have a tough time getting traction.

Your account manager should help you not only set the right CPA for your offer, but should also work with you to dial in your offer’s conversion rate. This isn’t something that happens over night, but can be done within a short time with iterative changes and small scale testing. Once this is done, your account manager should be reaching out to known, quality pubs (publishers, aka affiliates) to test and run your offer.

To make sure things don’t get out of hand, you’ll want to set a weekly cap on sales for your offer (i.e. 1000 sales per week). Set your cap too low, and you won’t get any attention from the high volume pubs. A daily minimum of 100 sales a day is really needed to get the attention of quality pubs that can drive the sales volume you’re looking for.

Once your offer is running on the network, you need to keep a close eye on your KPIs to keep tabs on affiliate quality. One bad affiliate driving high volume, low quality traffic, can lead to an influx of customer service calls, refunds and ultimately chargebacks. Monitoring KPIs like refund rate, lead to sale ratio, decline ratio and rebill rate on a sub ID level (tracking by individual affiliate) will help you to quickly weed out the bad eggs and keep your offer and merchant account healthy.

In addition to recruiting affiliates and helping with quality control, your affiliate network can also act as a buffer to help cashflow. Typically, a quality pub will receive next day payouts from the affiliate network. The advertiser pays the affiliate network weekly, typically with a net 7 term. With some history and negotiation, you will be able to do much better. In some cases, you may be able to negotiate weekly net 14 or even weekly net 21 terms with your network. The longer the term the better, as it allows you to collect on your sale before your invoice becomes due.

You should also build in a quality guarantee into your terms with the network. For example, if your product is sold on a trial or subscription basis, you may ask the network to credit you back if your rebill rate falls below 65%. If you’re selling a straight sale product, you may ask your network for credits back if the refund rate is over 12%. These are examples, but know that you need to keep your network and the affiliates accountable for performance and quality and the best way to do that is to make sure they have skin in the game.

Fraud is common in affiliate traffic. That isn’t to say that all affiliate traffic is fraud, by any stretch of the imagination. More often than not, ‘bad traffic’ is the result of affiliates using over-aggressive marketing tactics to close a sale. Regardless, you need to monitor and check for fraud, including ‘friendly fraud’. Tools like Max Mind, 3D Secure and Kount can help monitor and stop bad traffic before it impacts your business.

Interested in learning more about affiliate networks? Join us July 19-20 in New York City at Affiliate Summit East 2021 to meet and network with the top affiliate networks.

Midigator Review and Reporting

Fighting and preventing chargebacks to keep your MID healthy and durable is one of the most important aspect of one’s business. But how can you do that?

The old fashion way of solving chargebacks one by one manually is time consuming, inaccurate, and ineffective. The first step to correct this is to find a specialist, and by that, I mean a company that can handle the process of chargeback response and address them correctly. Chargeback response companies offer automated platforms for fighting and preventing chargebacks. Outsourcing to a reputable chargeback response vendor is the best way to attack this issue. Midigator is our preferred vendor for chargeback responses, alerts and reporting.

Using the reporting available in Midigator’s merchant dashboard, you can access a lot of useful information to diagnose chargebacks, such as the chargeback reason, affiliate IDs responsible for chargebacks and the most common BINs for chargebacks. One big plus of the platforms is that it connects with your CRM and processor so they can automatically send chargeback notifications and match them with the merchant orders.

CRM software offers information about the customer order, the customer service notes, shipping information, digital usage information, previous order information, SKU information. This information is sent from the CRM to your chargeback response team’s platform. Also, the merchant account portal sends information like chargeback reason codes, card information, transaction details, transaction price and data. By combining these two processes in the Midigator platform, the merchant obtains key insights to fight and prevent chargebacks.

Chargebacks are breakdown by reason code, marketing source, country, product type, price point, BIN, etc. The merchant can review this compact information and decide what action to take to reduce the chargeback ratio. For example, a merchant finds that when advertising on a specific social media platform he has a higher chargeback rate. He can decide not to advertise there any more or to change the products that he is trying to sell on that social media stream in order to reduce the number of disputes.

This information offers the merchant in-depth analytics by affiliate, BIN number, product, price point, reason code, chargeback lag time, country, and subscription cycle. Using this system, in coordination with outsourcing chargeback responses and alerts to a chargeback representment vendor results in higher win rates for chargebacks, comprehensive chargeback prevention and ROI-driven intelligent dispute responses.

Crossing the Pond: How to Sell in the European Union

There are 27 countries in the European union, 19 of which use the Euro as the official currency. As an advertiser, you need to find seize opportunity. Having a broader range of offers, in more geos, is a great way to bring consistency to your sales throughout the year. When US traffic is down, you have EU offers to sell, and vice versa. What’s more, the European Union boasts a population of 450 million people. While the countries you sell in (i.e. France, Italy, etc.) may be smaller, this should still give you an idea of the possible reach an EU offer could have.

The first country my company sold products in was the United Kingdom. We had made the decision to launch our first affiliate offer in the UK market, even though it would have been simpler to launch in the US. We did so because we didn’t fully know what to expect in the way of complaints or other issues.

Aside from the distance, and redundancy of having offers in multiple countries, the exchange rate can also be a benefit (or detriment, depending on the markets). Take this chart of the EU/USD exchange rate over the past 12 months.

As we can see, the exchange rate to USD has increased from around $1.08 to $1.18 per Euro. This means, if you were selling a product in Euros, your profit margins would have increased, purely due to the exchange rate. Your €50 product would now be worth $59 instead of the $54 it was when you started. That’s an increase of nearly 10%.

So how do we get started? First, you would need to form a company in the EU, with a local Director. There are many jurisdictions to choose from. One of the most popular is Cyprus. There are companies online that can assist with company formation and nominee directors, just do a google search.

The requirements for EU merchant accounts are more rigorous than they are in the United States.  Below is a preliminary list of the documentation that you will need to present to the bank to get a merchant account in the EU:

  • Copy of Principals Passport/National ID
  • 6 Months Merchant Processing Statements (if available)
  • Certificate of Incorporation (Originating Co. & EU registered Co.)
  • Articles/ Memorandum of Association
  • Copy of Business/Operating License (if applicable)
  • Voided Check or Bank Letter
  • Copy of Utility Bill for Owner and Business Presence
  • Domain Proof of Ownership
  • Cross Corporate Guaranty (Originating Co. to EU registered Co.)

As with US entities, the bank will want to see the documentation for the UBO (ultimate beneficiary owner) of your EU company, even if you have a nominee director. In some cases, EU banks have requested ‘apostiled’ packages. An apostiled package is the entire collection of corporate documents, notarized together. This however, is not a requirement our underwriters have.

There are a few other things to consider when selling in the EU. The first is funding times. Traditionally, high-risk EU banks have longer funding times. Weekly funding, 1 week in arrears, is not uncommon. Add to that, the delay of sending a wire from your EU company to your US company and your cashflow could be challenging. In most cases, we are able to secure daily funding for our EU merchants.

You’ll also need to complete regular filings and registrations for taxes and other compliance requirements, in the country you have chosen to incorporate in. As in the US, your registered agent can usually handle these administrative tasks for you. You will also need an EU accountant or an accountant that is savvy with the tax law in your EU jurisdiction.

Administratively, setting up an offer in the EU can be laborious. However, when you examine the reach, redundancy and other benefits of setting up in the EU, it is well worth the time and effort.

The Real Story Behind Underwriting (How to compile a clean and complete underwriting package)

The term “underwriting” is typically used in references to banks or insurance companies or any institution looking to mitigate their risk exposure. Due to the above mention, you should expect that in the process of getting a processing merchant account the bank will follow the Five C’s of Credit: Character / Capacity / Capital / Collateral / Conditions, but adapted to credit card processing environment.

Having a merchant application process is extremely important, and we should always focus our attention on the details, collecting the right information, keeping the big picture of the process in mind. When I am doing the underwriting for a merchant account I am looking at least at the following:

  1. Documents received from the merchant and connections between the documents and the URL or DBA.
  2. URL requirements
  3. Owner details
  4. Business model: industry, history, products and/or services

1.Documents received from the merchant must be up to date, complete, and all the important information as address, phone numbers, owners name, driver license must be the same on all documents and URL. It is especially important to have a clear scan copy of your corporate documents and have them ready when needed; you can have them saved on a drive location to have easy access. In most cases you will be asked for the following documents:

  • Articles of Incorporation
  • Most Recent 3 Months Business Bank Statements
  • Owner’s Driver’s License
  • Owner’s Utility bill
  • EIN Filing (IRS Form SS-4)
  • Pre-printed Voided Check
  • Customer Support Agreement
  • Fulfillment Agreement
  • Ingredient List. If the product is an ingestible product, a full ingredient list with amounts for each ingredient must be provided. 

2.URL requirements- we recommend the following:

  • DBA and Legal Name listed on every page.
  • Products/services sold clearly described.
  • No unrealistic, false, or misleading claims, no use of conveying a false sense of urgency to the customer (ex: countdown timer). No hidden or forced up-sells. No cross-sells from  other vendors. The use of “risk-free”, “free”, or “no cost” is prohibited.
  • Delivery methods listed on checkout page (i.e. USPS, FedEx). Shipping times should be clearly stated.
  • Products/services listed throughout the website should be in the correct currency.
  • Terms & Conditions are clearly stated and easy-to-read in 12-point font.  Refund/Return Policy present and makes sense. Privacy Policy present and makes sense. Hyperlinks to Terms & Conditions, and Privacy Policy and Cancellation Policy should be present on the website.
  • Customer service phone number should be consistent throughout website and match the number listed on the application. One or more methods of contact information should be clearly posted (business mailing address, email address, online chat, etc). The preferred method of communication for cardholder correspondence should be listed clearly on the checkout page.
  • Order checkout page is secure and lists full business address including country. i.e. USA.
  • URL/Domain registration are registered to the merchant and made public for validation. If you are using WHOISGuard or another domain privacy service, the service should be turned off during the underwriting process, so the underwriter can validate the domain’s ownership.
  • Any trial or recurring billing must be disclosed clearly, with, a checkbox for the customer to agree to the terms.
  • The merchant descriptor must be located on the checkout page.

3.Owner details will always have an important role in the underwriting process. Your  Credit Score can impact your chances of approval. Generally, a credit score of 650 or higher is suggested. You may be asked to submit financial statements (business and personal) in addition to your credit score.

4.Business model

Industry – High risk business, is directly proportional with the profit, so high risk may offer high profit, but the risk will follow. Examples of high risk business are: CBD, adult, dating, credit repair and monitoring, nutraceuticals, online gaming, skin and hair care, vape, web-design, SEO. We understand how to position the business and prepare an application package the right way – so you get more processing capacity and better terms with the best banks.

History – Your payment processing history can really make a big difference in merchant account underwriting. Having good processing history will have a direct and positive impact on your rates and approved volume. Your chargeback history is very important. If you haven’t checked it out already, you may want to read our article on How to Fight Chargebacks.

Transaction Volume – Transaction volume is one of the most important factors when it comes to merchant account underwriting. It is not uncommon for brand new businesses to have a smaller volume processing capacity, until their business model is proven successful. That cap will be increased when you have proven business stability by showing consistent sales volume, low chargebacks (under 1%) and low returns (below 10%).

Straight sale vs Continuous sales – One time purchase of a good or service with no other monetary obligations from the client vs continuity billing or rebills that appear when goods or services are bought by the consumer who understand that they will continue to pay the merchant on a recurring billing.

Adding recurring payments (like a monthly subscription) adds risk to your account. If you do have a subscription payment setup, it is important to be transparent with the consumer (and the underwriter) in order to be approved. Your terms and conditions should be clearly displayed on your checkout page. Your subscription terms should include the product/service description, shipping times, initial charge, trial period, and the amount and frequency of the recurring charge.

Feel free to contact us if you need help finding the right team to help you represent and manage your Underwriting Process.

How to Fight Chargebacks – Part 2, Managing Chargebacks

For better or worse, chargebacks are just a part of the game. For those merchants that are in denial or otherwise ignore the need to have a system for managing all aspects of chargeback disputes, they will continually be in the new MID – termination lifecycle. That is, they’ll spend time and resources setting up new MIDs, only to have them terminated within a few months. This is a very expensive way to run a business.

For those merchants focused on longevity, profit and building a resilient business, they put the time, money and energy in early on. The result is a more consistent way to operate, more MID cap and better payment processing rates. It is this latter group that we’re focused on here.

I’m a firm believer in the Japanese business principle of Kaizen. Kaizen is the iterative process of continual improvement. To manage your chargebacks in this business, you need to continually test and improve to build an unshakable organization.

Like many other problems in life, chargebacks are best dealt with before they are even chargebacks.  Monitoring pre-chargeback indicators is the most cost effective way to keep chargebacks at bay and to preserve your hard earned revenue. Specifically, the following early indicators can help you spot bad traffic before that bad traffic turns into chargebacks, terminations and losses.

High Sales to Partials Ratio
The sales to partials ratio is simply the number of sales, compared to the number of partials (sales that were started, but not completed). A good baseline ratio is 1:10. This means 1 sale, for every 10 partials. It may seem counter-intuitive, but when your ratio goes below 1:10, it may be an indication that there is a problem with your traffic. Often, affiliates can mislead customers about your offer, resulting in orders that were placed without the customer knowing the true cost or product benefits. When this happens, refunds and chargebacks ensue.

High Refund Rate
A high refund rate can also be cause for concern. Typically refunds should be in the 10-15% range, if you are running affiliate traffic to your offer. When refunds go higher than this, you need to dig deeper and find out why. Find those refunded orders, listen to customer service calls and spot trends. You may find that affiliates have used a famous personality to help promote your product, or otherwise mislead the consumer.

As with the other KPIs we’re discussing here, and Part 1 of this series on chargebacks, drilling down through your data to spot trends on a per network or per affiliate ID basis is best. By doing this, you can weed out the bad pubs, without cutting off the profitably ones.

Alerts
Order alerts from Verifi and Ethoca have been used for years to catch chargebacks before they are filed. When a consumer contacts her bank to file a chargeback, Ethoca and Verifi intercept the chargeback at the issuing bank, sending a chargeback alert to the merchant. The merchant has 24 hours to take action in order to prevent the chargeback from being completed. Usually that action is refunding the transaction. With the transaction refunded, the chargeback cannot be filed and there is no black mark on the merchant’s record.

The cost of chargebacks to the banks and card brands has not been lost on Visa and Mastercard. The card brands acquired Verifi and Ethoca respectively, in 2019.

Visa Order Insight
In 2020, Verifi announced the launch of Visa Order Insight (formerly known as Visa Merchant Purchase Inquiry, or VMPI). Every year, millions of transactions are chargeback, simply because the consumer doesn’t recognize the charge. Visa Order Insight connects the consumer, the issuing bank and the merchant in near real-time with robust information about the transaction.

Visa Order Insight provides the transaction details from the merchant CRM to the customer’s bank in near-real time. The merchant’s address and contact information are also passed along to the consumer’s bank, to make it easy for the customer to contact the merchant (instead of the bank). Order Insight passes along the following information to the customer’s bank:

  • Product description
  • Order quantity
  • Tracking information
  • Delivery status
  • Device used for placing the order

With more information about the order, the customer has a better chance of recognizing the charge. As a result, Order Insight promises happier customers, fewer lost sales and fewer chargebacks. If the customer still doesn’t recognize the charge and calls their bank, the bank’s customer service team is able to access the transaction information to help determine if the transaction should indeed be charged back.

While monitoring pre-chargeback indicators, using alerts and Visa Order Insight will prevent most chargebacks, there will still be some chargebacks that you will need to deal with. Specifically, when presented with a chargeback, you will need to compile the transaction data and send to your bank, to hopefully win the chargeback. You can learn more about this process in Part 1, The Causes of Chargebacks.

Chargeback Response
Chargeback response is largely a low-level data entry task.  So why outsource it? The time to compile the information and submit it correctly is time that could be spent improving your chargeback systems, driving new traffic to your website or otherwise working ON your business. At $8-10 per chargeback response, outsourcing your chargeback response to a team like Midigator makes sense. Remember, work on your business, not in it.

So which type of merchant will you be? Will you let chargebacks slide and focus your efforts of building new websites, new companies, applying for more MIDs and fighting to have your reserves released? Or, will you build something more robust, profitable, and long term?

Have questions about dealing with chargebacks that weren’t discussed in our chargeback series? Contact us.