By Anna Zotova, Chief Risk Officer, xpate
The e-commerce eruption of the last 18 months sent shockwaves everywhere, and merchants were suddenly bombarded by an influx of new customers locked down at home. While some consumers turned to Netflix or Spotify to alleviate their boredom, others turned to online gambling. The GameStop short-selling frenzy saw share trading merchants overwhelmed by millions of new customers, eager to jump on the bandwagon. The Robinhood trading platform welcomed a mind-boggling six million new customers signing up in just two months.
High-risk merchants in these sectors were thrilled to see such a massive wave of new business. But this sudden spike in demand caused some platforms to crash, leaving many customers unable to access their accounts or close their trading positions. Such disastrous outages serve as painful examples of how to lose customer trust in an instant.
No matter which area of e-commerce you’re operating in, providing a seamless customer experience is essential. But for high-risk merchants especially, there are so many more obstacles that need to be cleared, even before you get to the customer onboarding stage. If not navigated correctly, the merchant will be stranded in a nightmare of costly licensing, compliance and legal horrors that could put them out of business altogether.
Regulatory roadblocks stand in your way
You can be sure that whatever market you’re trying to expand into, you’ll be faced with the daunting prospect of applying for and receiving a license. Take gambling: some markets stipulate that you have a local license, which means you’ll likely benefit from higher approval rates from a local acquirer. But some markets have tenuous conditions. India, for example, doesn’t allow gambling, but hasn’t banned it either. Other markets, like Malta, take six months to grant gambling licenses, whereas others demand that the merchant establishes a physical, legal presence in that particular market.
When you realize that merchant licensing costs can eat up around 30 percent of a merchant’s pre-launch expenses, you’ll understand why it’s crucial to get the license application process right first time.
Once you’ve received your license, you need to ensure your admin skills are super sharp to keep up with renewal timeframes, validity requirements and ongoing compliance demands. If you forget to renew, or if you fall foul of license stipulations in any way, you’ll learn a painful and costly lesson that could very well ruin your business before you’ve even had a chance to grow.
Careful acquirers demand more from high-risk merchants
With your license in hand, you’re now in a position to apply for a merchant account from an acquirer. Nervous acquirers will require a raft of credentials from merchants with elevated risk profiles. Proof of ID, incorporation and shareholder certificates, and a full processing history (with transaction volumes, fraud and chargeback rates) going back at least six months will be the minimum they demand.
While requirements and account parameters will vary depending on the acquirer, generally high-risk merchants are classed as processing more than £/€20,000 in monthly volume, with average card transaction values over £/€500 or high transactional velocity of smaller amounts, and a chargeback ratio higher than 0.7-0.9 percent of total transactions. Of course, merchants in more speculative sectors will have a higher chargeback rate than low-risk merchants by definition, but if it creeps higher than 1 percent, the merchant’s account could be frozen, or terminated completely. When you can’t accept and process online transactions, that’s the end of your e-commerce business.
Seamless customer onboarding needs user-friendly design
The merchant who up to now has met all these various legal and acquirer demands shouldn’t breathe a sigh of relief just yet. There is one final obstacle to clear, and that is how to start attracting, onboarding and keeping customers.
When potential customers are about to sign up, they want to see a simple, user-friendly registration process. They want quick ID and know-your-customer (KYC) verification, account confirmation, and instant activation through their email, phone or social media accounts. If confronted with a badly designed registration interface, those customers will disappear at the last moment. When the merchant has gone through so many trials and tribulations to get up and running, how gutting must it be to see customers turning away at the last moment because of clunky and confusing UX design.
A stable platform will be the backbone of your business
High-risk merchants—whether they’re in the gambling, forex, share trading sectors or other high-risk activities—cannot afford any delays when customers want access to their funds. If you want to destroy your customer’s trust in the most catastrophic way, preventing them from accessing their money is how to do it.
Deposits, withdrawals and transfers should be cleared and settled as soon as possible. And for that, your payment platform should be strong enough to cope with sudden demand spikes (such as millions of new customers signing up in a short time period).
Merchants also need top-class customer service, because you’ll deal with higher volumes of customer queries due to the nature of your business. Ensure that you have responsive 24/7 multi-language customer support available from your payment service provider (PSP), and for you as well.
With a strong, dynamic platform in place, all of these ongoing processes are automated and streamlined. You won’t have to sign up with multiple acquirers, and you’ll benefit from wide network connections, enabling fund settlements and transfers using intelligent transaction routing for the best forex rates. You’ll never have to worry about jumping any more compliance, acquiring, and compliance obstacles, because your PSP will shoulder those burdens on your behalf, so that you can focus on serving your customers.