Multi-level merchants (MLMs) can find it difficult to build and maintain relationships with merchant account providers. Even when a bank does take on what they perceive to be a “high-risk” merchant, the discount rates can be astronomical and may require a large upfront reserve. The odds are not in an MLMs favor.
Despite that reality, many MLMs do establish relationships and are able to grow their business for a period of time; however, a looming threat is always that the merchant could be dropped the the merchant account provider at any time. These occurrences have been accelerated by the recent campaigns by the FTC to “crack down” on MLMs. Take Herbalife, for example, who was recently forced by the FTC to pay back roughly $200 million to people who claimed to have been misled by the nutraceutical giant. Once those bridges are burned, it can get sticky for merchants to build relationships elsewhere in an industry where the top ten acquirers globally are responsible for 50% of card transaction volume.
The loss of processing abilities is typically a death sentence for businesses. Unfortunately, the current climate is forcing many direct selling and multi-level merchants (MLMs) to face this stark reality. Merchant acquirers are becoming more stringent than ever in an attempt to “trim the fat” from their liabilities, lower operational costs and remove themselves from what they perceive as a cumbersome group of merchants. Even merchants who have an account today must look ahead to the long-term and be prepared for the worst.
To better understand how merchant account termination happens, it’s important to look at the bank’s perspective. Merchant accounts that grow too quickly, have too many chargebacks or have a business model that may lead to increased chargebacks are not sought after by banks who are trying desperately to cut costs on their end. Because MLMs are unique, they face special challenges – like increased chargebacks and unpredictable patterns – that force them into the chopping block scenario quite often.
When a bank adjusts its portfolio to cut these types of merchants, it can create chaos in terms of next steps for the merchant – and the bank. This is where a merchants can benefit from a relationship with a digital payments advocate who can create and guide MLMs through a merchant account migration plan that can be beneficial to both parties. This digital payments advocate can provide a path to an amicable resolution and transition for both the bank and the merchant’s operations team. Without a digital payments advocate, many MLM merchants must swim upstream alone to find a merchant account provider that will allow them to continue business. The sad reality is that MLMs bad rap often make this almost impossible or at least very, very expensive in the form of increased fees and disruptions to operations.
If you’re an MLM or direct selling merchant, consider this checklist below and ask if you have the right person in place to manage these essential tasks and challenges:
- Ability to establish new merchant accounts, manage merchant account relationships and act as advocate if issues arise
- Monitor growth to determine when to establish new merchant account in a specific country; monitor fraud ratios and volume caps and more
- Understands the nature of volume fluctuation as well as issues with occasional downline fraud/chargebacks and is proactive to keep merchant accounts in good standing
- Has strong relationships with merchant banks that have an understanding and a long-term appetite for businesses considered high risk
- Implement better processes to keep established merchant bank relationships stable, significantly reducing processing fees
- Load balance transactions properly
- Improve the overall efficiency of internal payments systems and is proactive in maintaining good relationships with merchant banks
Your business depends on having key relationships with key players when it comes to merchant accounts, but it also depends on your business. That is, your time should be spent on the core business focus rather than on navigating doomsday scenarios for your payment processing.
Want to learn more about how a Digital Payments Advisor can free you up to focus on improving revenue? Download our latest ebook, “What Every Merchant Should Know About Hiring a Digital Payments Advisor”.