200 million dollar FTC settlement with leading Multi-level Marketing company, Herbalife has your merchant account provider carefully accessing your risk exposure to their portfolio.
Multi-Level Marketing companies have always been considered high risk by the merchant banks which makes it tricky to establish AND maintain a long term credit card processing solution. As one of the first mlm online payment consultants in the industry, I can tell you that getting an approval for a startup or established MLM company is like getting invited for tea with the Queen at Buckingham Palace. While the potential to board a high volume account is enticing, the banks look at the risk associated with these merchants. Risk include:
- Limited Processing Stability- MLM companies typically have very fast growth during the first 2-3 months and need an uncapped merchant account to support the volume. After the 4th month, the volume begins to stabilize and then declines. This immediately triggers exposure concerns at the bank.
- Complaints- Even Apple has thousands of complaints on RipOffReport.com and it shouldn’t hold much weight. However, to a bank who has to report to Visa/MasterCard, BBB complaints do not like the reputational risk.
- Chargebacks- Without fail, EVERY multi-level company will have a fraud ring hit them or launch in a country that is prone to chargebacks.
Unstable processing revenue+ bad press+ chargebacks + historical issues= Merchant Account Termination
There is a very strategic system keeping these merchants processing both in the US and with offshore merchant accounts.
You know the saying, “birds of a feather flock together”. Well….
Two recent FTC settlements with direct selling companies Veema and Herbalife are causing major red flags at merchant account providers across the globe. Risk teams are pulling files to carefully review all MLM accounts in their portfolios to determine current risk exposure. When you are operating a direct selling account, this is the last thing you need or want. Questions from the bank start being asked, new holds are implemented, fraud scrubbing rules are enforced and you may be asked to leave.
This is happening now.
There are several steps you can take to prepare your company for possible termination.
First, make sure you have open communication with your merchant account provider and a specific account or sales manager. They will be the first one to hear if something is happening with your account. For example, I work with 15 banks in the US and Internationally and have direct communication with the CEO or owner. If issues arise, I get the call and have the ability to remedy the problem for my MLM account or I am given enough time to move my client to a new merchant bank.
Secondly, make sure you have more than one merchant account relationship. I cannot stress enough not to keep all your eggs in one basket. It’s a dangerous play. On the other hand, do not setup multiple merchant accounts without a proper strategy or reason behind it. There is a method to doing it in a compliant way that doesn’t create more problems.
Lastly, make sure you are working with an attorney who specializes in this vertical to ensure you are staying abreast with the latest compliance requirements being imposed on direct selling companies.
Since 2000, Patricia Carlin has been assisting some of today’s largest MLM companies establish and maintain stable credit card processing solutions. She is a well respected merchant termination specialist who works as a mediator between the bank and the merchant to carefully move the volume to another merchant account provider without any downtime.