ETA HIGH RISK WEBINAR

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®

Navigating the High Risk World

AN AGENT’S GUIDEBOOK

H E L P I N G Y O U R B U S I N E S S

S U C C E E D

ETA HIGH RISK WEBINAR

THURSDAY, MAY 16, 2013

Speakers:

Heather Petersen, CEO

National Merchants Association

(866) 509-7199 Ext. 100

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• What is High Risk & How Has it Changed?

– What makes a merchant high risk?

– Who determines a merchant’s risk level?

– What can Agents & Merchants expect?

• Q&A

• Alternative Processing

– International

– Aggregation

• TPP/PSP

• Risk Management

– Underwriting

– Fraud/Risk prevention

• Q&A

Agenda

TOPICS TO BE DISCUSSED

WHAT

IS

HIGH RISK?

WHAT FACTORS MAKE A MERCHANT HIGH RISK?

Merchants with increased risk of

fraud or chargebacks

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Visa Defines Specific SIC Codes

SOME REQUIRE VISA HIGH RISK MERCHANT REGISTRATION

SIC CODE DESCRIPTION

5962

Direct Marketing Travel Related Arrangement

Services

5966

Direct Marketing Outbound Telemarketing

Merchants

5967

Direct Marketing Inbound Telemarketing

Merchants

7995

Betting, Lottery Tickets, Casino Gaming

Chips, Off-Track Betting, & Wagers at Rack

Tracks

5912

Drug Stores & Pharmacies

5122

Drugs, Drug Proprietaries, & Druggist

Sundries

MasterCard Defines Specific SIC Codes

SOME REQUIRE VISA HIGH RISK MERCHANT REGISTRATION

SIC CODE DESCRIPTION

4814, 4816,

& 5967

Telecom Merchants

5967, 7273,

& 7841

eCommerce Adult Content (videotext)

Merchants

7955 &

9754

Non-face-to-face Gambling Merchants

5993

Non-face-to-face Tobacco Product Merchants

5912 &

5122

Non-face-to-face Drug Stores & Pharmacies,

Drug Proprietaries, & Druggist Sundries

9399

State Lottery Merchants

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Special SIC Codes

REQUIRE ADDITIONAL SCRUTINY WHEN UNDERWRITING

SIC CODE DESCRIPTION

4814, 4816, & 5967

Telecom Merchants 5967, 7273,

& 7841

eCommerce Adult Content (videotext) Merchants

7955 & 9754

Non-face-to-face Gambling Merchants 5993 Non-face-to-face Tobacco Product Merchants 5912 &

5122

Non-face-to-face Drug Stores & Pharmacies, Drug Proprietaries, & Druggist Sundries 9399 State Lottery Merchants

SIC CODE DESCRIPTION

5962 Direct Marketing Travel Related Arrangement Services

5966 Direct Marketing Outbound Telemarketing Merchants

5967 Direct Marketing Inbound Telemarketing Merchants

7995 Betting, Lottery Tickets, Casino Gaming Chips, Off-Track Betting, & Wagers at Rack Tracks

5912 Drug Stores & Pharmacies 5122 Drugs, Drug Proprietaries, & Druggist

Sundries

Sponsor Bank Credit Policy

A MORE DEFINED SCOPE OF HIGH RISK

CARD BRANDS SET THE RULES

Certain SIC Codes require additional registration, monitoring, & maintenance

SPONSOR BANKS CREDIT POLICY

Often opt out of processing for higher risk merchants instead of extending additional required resources for the registration, monitoring, & maintenance.

ACQUIRERS MUST FOLLOW BANK RULES

Acquirers must abide by their Sponsor Bank’s credit policy & prohibited list, often times MUCH more extensive and defined than the few Card Brand SIC Codes. C A R D B R A N D S

S P O N S O R B A N K S A C Q U I R E R S

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WHAT

IS

HIGH RISK?

WHAT FACTORS MAKE A MERCHANT HIGH RISK?

_{Merchants with increased risk of fraud or chargebacks}

_{Could be result of:}

Merchant’s industry

Payment terms

_{Ticket size}

Volume

Product offering

Business credit score

Personal credit score

_{How payment processed}

When settlement occurs

CNP

Previous processing history

Bank balances

_{+ more}

THE

SILVER

LINING

EVEN HIGH RISK MERCHANTS CAN PROCESS

_{Sponsor Banks may allow certain Acquirers to board higher risk}

merchants

Not all high risk merchants are bad

The reward may outweigh the risk = $$

Strong portfolios can handle an occasional high risk merchant

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High Risk Processing Poll

WHAT HAPPENS TO HIGH RISK APPLICATIONS?

POST YOUR QUESTIONS TO THE

CHAT BOARD

Q&A

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INTERNATIONAL

PROCESSING

ALTERNATIVE PAYMENT PROCESSING

_{Foreign Merchants doing business in U.S.}

EX) Overseas Tech Support

Must Register in U.S.

Must Settle USD

Abide by Regional Card Brand Rules

_{U.S. Merchants offering services to other countries}

EX) Weight Loss Products

Opens doors to new clientele & higher revenues

Some regions specialize in specific merchant types

Must register to do business in that country

_{Could result in additional taxes & Bookkeeping}

Additional expense of setup

Financial stability concerns of other countries

Must settle in that country’s currency

Alternative methods / Gateways

_{Typically can only offer Visa & MasterCard}

Funding delay

Still have to abide by Regional Card Brand rules

Banks can be more stringent than in U.S.

Fees may be higher

AGGREGATED

PROCESSING

ALTERNATIVE PAYMENT PROCESSING

Merchants selling products or

services they do not own

• Works well for some

Nutra products

• Shares risk

management &

monitoring

• Simplifies the

• Must be managed

properly

• TPP must be

financially stable

• Must monitor closely

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HOW

UNDERWRITERS

DO IT

UNDERWRITING HIGH RISK

_{Complete Underwriting Package:}

_{Signed Application}

_{Clear Copy of Owner’s ID/Passport}

_{Articles of Incorporation}

_{Financial Statements}

_{Bank Statements}

_{Processing Statements}

_{Business Plan & Pro forma (new biz)}

LEVEL

2 UNDERWRITING

ADDITIONAL INFORMATION REQUESTS

Accuracy of business information and corporate documents

Compliance with website standards

Trustworthy, legal, and legitimate business model

_{Terms & Conditions}

Cancellation policy

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• Monitoring Services

• Using Bank’s Gateway

– Implementation of Fraud

Prevention/Detection programs

– Screening of customer

• Chat Boards/Rooms

– Bank Card is a Small World

☺

RISK MANAGEMENT

ADDITIONAL PARTNER SUPPORT MECHANISMS

• Find a good high risk processing

partner

• Special skill set required for

underwriting & risk management

• Improper underwriting causes

problems for agents AND merchants

• Ongoing risk monitoring is not optional

HIGH RISK REQUIRES EXPERTS

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IS MY

MERCHANT

HIGH RISK?

WHAT YOU & YOUR MERCHANTS CAN EXPECT

• DON’T: Delay in getting requirements back to underwriters quickly.

DO: Expect to undergo a thorough underwriting process when submitting a high risk deal.

• DON’T: Disguise your merchant’s application in order to get it approved.

DO: Check to insure your merchant meets the Bank’s credit policy of acceptable merchant types.

• DON’T: Submit your merchant to multiple banks.

DO: Expect underwriting to make a personal phone call to your merchant. DO: Expect underwriting to make a personal phone call to your merchant.

• DON’T: Expect underwriting to disclose personal information on the merchant.

DO: Obtain the reasoning if your merchant is declined. DO: Obtain the reasoning if your merchant is declined.

• DON’T: Expect underwriting to do your job as the sales agent.

DO: Put your package together and double check for accuracy before submitting.

• DON’T: Expect every deal to be approved.

DO: Know that some deals are just plain bad and you should walk away. DO: Know that some deals are just plain bad and you should walk away.

RECAP:

HIGH RISK

SOME FAQ’S

•The acquirer is required to enroll the merchant in the Card Brand Registration program before processing begins

My Merchant’s SIC Code is one that is defined by the Card Brands as High Risk My Merchant’s SIC Code is one that is defined by the Card Brands as High Risk

•If the merchant type violates your bank’s credit policy, DO NOT submit the application, instead locate a partner acquirer that specializes in the handling of this higher risk merchant.

My Merchant doesn’t meet my Bank’s credit policy of acceptable merchant types My Merchant doesn’t meet my Bank’s credit policy of acceptable merchant types

•As long as the merchant did not violate any Card Brand rules, they may still be able to process. Sometimes merchants are terminated because they do not meet the Sponsor Bank’s credit policy criteria.

My Merchant was terminated by a previous processor My Merchant was terminated by a previous processor

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