PayThink How to stay ‘unfrozen’ during the e-commerce wave

September 23, 2020

PayThink How to stay ‘unfrozen’ during the e-commerce wave

By Donald Kasdon

September 22, 2020, 12:01 a.m. EDT3 Min Read

As many brick-and-mortar stores remain closed or under strict occupancy limitations due to COVID-19, consumers are increasingly turning to e-commerce.

Retailers such as Best Buy, Target, Dick’s Sporting Goods, Lowe’s, Tiffany & Co. and Home Depot all reported triple-digit growth online last quarter.

Because of this new reality, providing customers with a seamless online shopping experience is more important than ever. Sure, it was important before the pandemic, but now it is make or break; any interruption to your customers’ checkout experience could mean a lost sale when every dollar counts. The onset of the pandemic has not only magnified the importance of online experiences, but also made owning a high-risk business much more challenging. Here’s why.

High-risk businesses are subject to terminations, freezes and holds more often than a medium- or low-risk business, regardless of the global climate. Often, a company’s payment processing can be impacted because a processor provides a merchant account without thoroughly vetting the business before approval, and later discovers it is a high-risk business.

This happens when payment service providers over-automate their underwriting processes, and certain information is overlooked. The account is then terminated for violating terms, even if the merchant did not misrepresent their business.

Sudden terminations and freezes can also be caused by fraud, or the deliberate use of deception to cause loss or disadvantage to a third party. This may include behavior such as the misuse of payment card information, deliberately not providing goods and services and other unsavory activities.

The challenges facing high-risk merchants have only been amplified by COVID-19. For instance, while payment-related fraud is always an issue facing consumers, merchants and PSPs, the global pandemic has given rise to an increase in fraudulent attacks across industries. This is because the crisis presents an opportunity for fraudsters, who are capitalizing on the rise in online transactions as well as the change in business processes as companies’ operations shift to working remotely. However, awareness, caution and proper training can keep those intent on causing financial harm at bay.

Although high-risk merchants are more likely to receive a hold or freeze, there are a few simple steps every business can take to reduce their risks. Here are four tips every high-risk merchant should keep in mind:

• Reduce risk through chargeback mitigation. Chargeback mitigation is one of the best ways to prevent a freeze or hold. This can take the form of providing customer support for refunds and issues or deploying chargeback mitigation tools to keep your merchant account healthy.
• Protect customer data. Merchants should ensure their customers’ data is safe by maintaining Payment Card Industry compliance. PCI compliance refers to the technical and operational standards that businesses must follow to secure and protect credit card data provided by cardholders and transmitted through card processing transactions.
• Be fully transparent during the underwriting process. It is easier to be honest and allow the processor to make a decision based upon real data than to lie about it, get caught and have the merchant account terminated. For instance, merchants should not introduce, add, or sell products on their website that were not approved by an underwriter during the onboarding process.
• Follow local laws and ordinances. It is important to stay up to date on the latest rules and regulations and not risk selling banned or illegal items. As an example, in the U.S., under federal law, CBD products that contain less than 0.3% of THC are legal in all 50 states. However, state laws can be vague and open to interpretation by law enforcement authorities. If a high-risk business operates in an industry regulated by vague or evolving legislations, the risk tools payment partners deploy will ultimately uncover any compliance issues and the future of the company could be put in jeopardy.

At the end of the day, if the processor does not understand the particular needs of high-risk businesses, merchants working with them could face a sudden financial disaster if their account is terminated without warning. That is why it is so important — especially in the new conditions — to work with a PSP that understands and has experience working with high-risk businesses.

Donald Kasdon
Founder, T1 Payments