bornformoney
Supreme Member
- Feb 22, 2011
- 1,209
- 1,686
Hello all, as I'm getting more accustomed to the forum after nearly a decade, I see a sharp rise in some particular kind of JVs that are very troubling for unsuspecting users. Figured I'd share some of my insights on the topic and save you from a world of headache.
Credit to @TheMarquis as he suggested I share this with the community.
Let's dive in. Payment processing JVs might seem very lucrative on the surface but beneath that they can ruin your chances of ever owning a business. Here's why.
One of the primary problems with such JVs is Chargebacks. You have no idea on the origination of transaction. Over the years both Visa and MC have gotten stricter on their chargeback grading. MC especially has been stricter on merchants. When someone tells you the chargebacks are between 1% to 5%, it's more like 4% to 10% over a period of 90 - 120 days.
That means, for the transaction that you process today, on behalf of someone you just met online, you carry the liability for months to come, while they're getting paid within 2 days. There's no middle ground here UNLESS they share the entire customer info with you, sale origination point, and that you can call the customer, and get it in writing that they've purchased what the merchant is saying to you.
Additionally, you may feel to swallow the chargeback losses against your potential profits, but that's only half the picture. We've still unaccounted for chargeback fees, and any other fines you may potentially face. On top of this, especially if you're asked for a Stripe account, just don't even bother. Stripe will flag the transaction in under a week and you'll be stuck in a tough position. If you pay out your JV partner, you're still liable to Stripe for months to come, OR if you chose to hold onto the funds, you're liable to your JV partner, and they may not be liquid enough to fulfill the product/services. That means the transaction will result in a chargeback.
You're losing either way.
A rule of thumb, and this varies slightly depending on the type of processor - but chargebacks overall shouldn't be exceeding over 1%. They expect you to be around 50-70 bsp (basis points). 100 basis points = 1%.
And this isn't a rule just for the merchants. This goes for the processors too. Processors mitigate this with a ton of "low risk" retail transactions to balance their overall numbers. Card brands have also caught onto to this and now they exclusively monitor high risk transactions. I know this because I was in the payments industry for a few years (will share in my journey threads), and have seen quite a bit of it. Processing rules vary both domestically and INTL among processors, aggregators, Payfacs, and other ISOs.
Read up about the Merrick bank's fiasco and what resulted upon it and you'll understand the big picture.
So what's the solution? Proceed with caution.
Know your partner well. Are they who they're saying they are? Can you or one of your representatives meet them in person and verify the operation? Where's the accountability. Only then you may venture in. BH Payment processing is a slippery slope, before you realize it, you may be committing a dozen offences — ranging from transaction tumbling to wire fraud. The latter carries one of the toughest sentences.
Don't deal with Stripe or other Payfacs, instead opt for a legitimate processor that understand the high risk processing business. Reason is they'll be equipped with tools like RDR (Rapid dispute resolution), and a few other Visa/MC tools available to high risk merchants. This mitigates your liability to some extent, but you're still on the hook.
Feel free to ask any questions in this thread on this topic. I'm well familiar with everything from being a merchant, all the way to becoming a direct acquirer with Visa/MC.
Credit to @TheMarquis as he suggested I share this with the community.
Let's dive in. Payment processing JVs might seem very lucrative on the surface but beneath that they can ruin your chances of ever owning a business. Here's why.
One of the primary problems with such JVs is Chargebacks. You have no idea on the origination of transaction. Over the years both Visa and MC have gotten stricter on their chargeback grading. MC especially has been stricter on merchants. When someone tells you the chargebacks are between 1% to 5%, it's more like 4% to 10% over a period of 90 - 120 days.
That means, for the transaction that you process today, on behalf of someone you just met online, you carry the liability for months to come, while they're getting paid within 2 days. There's no middle ground here UNLESS they share the entire customer info with you, sale origination point, and that you can call the customer, and get it in writing that they've purchased what the merchant is saying to you.
Additionally, you may feel to swallow the chargeback losses against your potential profits, but that's only half the picture. We've still unaccounted for chargeback fees, and any other fines you may potentially face. On top of this, especially if you're asked for a Stripe account, just don't even bother. Stripe will flag the transaction in under a week and you'll be stuck in a tough position. If you pay out your JV partner, you're still liable to Stripe for months to come, OR if you chose to hold onto the funds, you're liable to your JV partner, and they may not be liquid enough to fulfill the product/services. That means the transaction will result in a chargeback.
You're losing either way.
A rule of thumb, and this varies slightly depending on the type of processor - but chargebacks overall shouldn't be exceeding over 1%. They expect you to be around 50-70 bsp (basis points). 100 basis points = 1%.
And this isn't a rule just for the merchants. This goes for the processors too. Processors mitigate this with a ton of "low risk" retail transactions to balance their overall numbers. Card brands have also caught onto to this and now they exclusively monitor high risk transactions. I know this because I was in the payments industry for a few years (will share in my journey threads), and have seen quite a bit of it. Processing rules vary both domestically and INTL among processors, aggregators, Payfacs, and other ISOs.
Read up about the Merrick bank's fiasco and what resulted upon it and you'll understand the big picture.
So what's the solution? Proceed with caution.
Know your partner well. Are they who they're saying they are? Can you or one of your representatives meet them in person and verify the operation? Where's the accountability. Only then you may venture in. BH Payment processing is a slippery slope, before you realize it, you may be committing a dozen offences — ranging from transaction tumbling to wire fraud. The latter carries one of the toughest sentences.
Don't deal with Stripe or other Payfacs, instead opt for a legitimate processor that understand the high risk processing business. Reason is they'll be equipped with tools like RDR (Rapid dispute resolution), and a few other Visa/MC tools available to high risk merchants. This mitigates your liability to some extent, but you're still on the hook.
Feel free to ask any questions in this thread on this topic. I'm well familiar with everything from being a merchant, all the way to becoming a direct acquirer with Visa/MC.
