opinion

High-Risk Rates Reduce Revenue Risk

High-Risk Rates Reduce Revenue Risk

Can you imagine if your business suddenly had no sales and cash flow? Companies and executives who have been in high-risk sectors for a long while are already aware of the importance of working with reliable payment processing solutions, even if the rates on transactions are higher. From time to time, it is essential to reiterate the reasons for going with a higher rate so that newer companies can learn from past tragedies without having to experience income loss themselves.

When you start putting together your payment processing cascade on a site in adult, gambling, nutra or any other high-risk sector, there is always going to be a temptation to seek out the lowest possible transaction rates. Why wouldn’t you want to save five or six percentage points on every sale, if all processing were a “one size fits all” solution? The simple fact is, processing in these verticals is handled very differently from one provider to the next, much the same way that content from the same niche might still be managed very differently by different producers or paysite owners.

In recent years, it appears that platforms like PayPal have started to loosen their grip on processing for high-risk web portals.

In recent years, it appears that platforms like PayPal have started to loosen their grip on processing for high-risk web portals, but if you ask around … you will very quickly hear horror stories from many veterans of their past attempts to squeeze out clients they felt were “too adult” for their tastes. Sometimes, they have begun closing entire accounts that had been in good standing, simply because they didn’t “like” the idea of processing transactions for people who happen to make money from adult entertainment online.

And while some companies in adult are processing with PayPal and haven’t had any trouble, yet, others have sought out homemade solutions, like quietly using a point-of-sale (POS) terminal from a local bank or newer options like Square — without being completely honest about the nature of the charges processed through the platform.

At first, this may sound savvy, because it would save a site owner a handful of percentage points on each sale, but the reality is that it violates the terms of your banking or processing agreement. Even more troubling, a quick browse of industry message boards will show you numerous times that traditional banks like J.P. Morgan Chase have closed down accounts without notice, going so far as to close personal checking accounts of individual “porn stars” just because someone on their compliance staff decided the account owner was unsavory.

The reason high-risk payment processing costs more is that the companies that provide it, like MobiusPay, have entered into reliable high maintenance agreements with banks that are knowingly willing to handle these kinds of transactions — but only after an enormous amount of due diligence and compliance work is performed on an ongoing basis.

Large commercial banks do not rely on high-risk transactions for the majority of their income. So anything that might put the other parts of their business at risk isn’t worth the potential opportunity costs of having their own arrangements with Visa, card associations and governments jeopardized. Remember how Google Adwords chose its mainstream advertisers and abruptly shut the door on its adult advertisers? Similarly, most banks are only willing to work with a select few number of companies that have established long-term clean and responsible records over a period of many years. They also charge higher rates, and they require a tremendous amount more monitoring work to be done on the payment processors’ end in order to continue putting through transactions for clients like you.

So, that leads us to a tranquil moment of math. See if you can determine which of the following is more cost effective. Let’s assume you processed $100,000 worth of transactions. Would you prefer to pay three-percent transaction fees and run the significant (if not likely) risk of losing that entire amount to a bank closure? It has happened to many adult companies in the past. Alternatively, would you prefer to pay a few more points on each transaction and know that the money you earned is going to be safely and reliably sent to you via ACH transfer each week? For those who hate math, $100,000 minus 6 percent is a heck of a lot more money in your pocket than losing the entire $100,000 before it ever finds its way into your pocket.

For more information on this topic, or to establish reliable billing for all your online endeavors, contact your friends at Mobius Pay. Minimizing your risk, maximizing your revenue and optimizing all of your payment options is what we do best.

Jonathan Corona has more than a decade of experience in the electronic payments processing industry. As MobiusPay’s VP of Compliance, Corona is primarily responsible for day-to-day operations as well as reviewing and advising merchants on a multitude of compliance standards set forth by the card associations. MobiusPay specializes in high-risk merchant accounts in the U.S., E.U. and Asia. Follow them @MobiusPay on Twitter.

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