educational

Online Billing - Due Diligence

Melody L

Web traffic is an integral part of the e-commerce merchant’s customer acquisition strategy. So much so, in fact, that typically anyone can sign up as an affiliate online and begin sending traffic to their new partner very quickly. Affiliates are so vital to merchants that there are: job positions for Affiliate Managers; companies created to simply manage the affiliate network for their content sites; and numerous software companies whose purpose is to track affiliate traffic and to pay them properly for the business they have provided.

With profitability resulting from traffic being directed to a merchant’s sites, it seems the more affiliates a merchant has, the more consumers that the merchant will see and thus the more signups the merchant will gain and, theoretically, the greater profit the merchant will experience.

Why would Europe be developing requirements around affiliate marketing and merchants that use affiliates? They have found it to be a source of fraud ...

Affiliates are paid through many different arrangements but in general for every consumer that signs up to a merchant’s site, no matter how long they remain a member, the affiliate will be making money on that introduced consumer. This reward system also encourages affiliates to potentially post material or promises that could be considered against card association regulations but will win them more consumer signups in the short term.

With an affiliate being so essential to the merchant’s business model and with merchant employees being compensated for the increase in affiliates and traffic, the questions are: 1) How well does the merchant actually know their affiliates? 2) How much due diligence has been performed on these affiliates? And, 3) What is the acquiring bank and the merchant responsible for knowing about these affiliates?

Visa Europe is asking similar questions and is beginning to formulate requirements to satisfy those questions.

Why would Visa Europe be developing requirements around affiliate marketing and merchants that use affiliates? The answer is quite simple: They have found it to be a source of fraud and, to maintain the integrity of the payment channel, they are addressing this known problem.

The guidance they have published to the acquiring banks which introduce these transactions into the network is one that addresses education, knowing their customers’ business practices, and strict guidelines on ensuring compliance with the card association rules related to the consumer and introduction of transactions to the network.

Specifically, Visa Europe is stating that merchants should inform their acquirer of any agents or affiliates or marketing models that they are using that involve third parties or affiliate networks. Acquirers should ensure that their merchants perform due diligence on their affiliates prior to working with them. This due diligence should include: ownership structure, location of the affiliate, business model used, copy of affiliate’s passport and pricing model. Acquirers must ensure that all transactions are introduced into the system directly by the cardholder and that this data is not captured by the affiliate on behalf of the merchants.

Regarding Visa Europe’s guidance to merchants, they suggest that due diligence is performed on the affiliate prior to working with one, constant monitoring of affiliate performance and that merchants never process a transaction from an affiliate that is on behalf of the cardholder. The transaction is required to be directly from the cardholder to the merchant.

This guidance, although more intrusive for the merchant, will only benefit said merchant and give them the necessary justification for knowing their affiliate partner more thoroughly. It will not be a competitive disadvantage because all merchants processing through EU acquirers will be held to the same accountability.

Merchants should already be monitoring their affiliates and also handling the transaction from the consumer directly. Where the additional effort arises is in making the acquirer comfortable with the merchant’s business practices and ensuring that the merchant will not create a risk for the acquirer regarding the regulations to which they need to abide.

If you are a merchant who utilizes affiliate networks for your transactions, it would be prudent to start collecting the information outlined above from your new affiliates, including a passport copy. Further, it is recommended that you document your business and the way in which you work with affiliates so that your acquirer will be able to have this information instantly when it is requested.

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