By Anna Zotova, Chief Risk Officer, xpate
Thanks in no small part to the pandemic driven lockdowns of 2021, the gambling and gaming sectors experienced a boom in business as consumers flocked to betting platforms and online casinos.
Similarly, a turbulent market for shares, currencies and commodities has led to soaring sign-ups for a range of trading platforms, including Robinhood, which added six million users in just 60 days during January and February 2021. However, this surge in usage led to some platforms suffering disastrous outages with clients unable to access accounts and close positions.
But while this surge in customer numbers is good news, merchants in gambling, stock trading or foreign exchange trading sectors, are continually struggling to meet increasingly complex regulatory hurdles, which if not managed correctly, can stifle a business before it’s had a chance to get off the ground.
Cross-border payments can be complex enough without the extra hassle of meeting regulatory and compliance requirements, not to mention the issues of securing accounts with acquirers who are averse to high-risk merchants. The need to make payments as frictionless as possible adds another layer of complexity to merchants who are already faced with numerous obstacles.
Navigating the regulatory and licencing maze
Whichever market a merchant is looking at moving into, there will be multiple regulatory hoops to jump through. Trying to navigate a seemingly never-ending maze of regulatory and licencing obstacles is daunting, especially for a new ecommerce business that wants to sell to several markets.
For high-risk merchants, obtaining a licence is often the biggest hurdle they will face. Markets are classed as white or grey. White markets typically require a local licence, which enables high approval rates, lower processing costs and better perception of the banks and payment providers. At the same time, these advantages often come hand in hand with additional conditions the company has to cope with. To mention a few examples for FX/CFD brokers, these could be the restrictions in maximum leverage for major currency pairs or individual equities, implementing negative balance protection or a requirement to close a client’s open positions when the account equity reaches 50% of the required minimum margin by all open positions, ban on offering bonuses and other regulatory demands that can significantly influence the marginality of one’s business.
In addition, local licensing regimes usually require additional investments in setting up the business locally, such as hiring professional local staff and impose regulatory burden, such as extensive reporting and undergoing periodic regulatory audits. In some markets, licencing commitments can cost up to 30% of a merchants pre-launch expenses.
Even once a licence is granted, merchants also need to be mindful of validity duration and renewal timeframes. Missing these deadlines or letting licences expire runs up painful costs that could have been avoided. Tracking compliance requirements, licence renewal dates and other variables can quickly become an administrative nightmare. For whatever reason, falling out of compliance can destroy a business, both financially and reputationally.
Conversely, grey markets often come with legal complexities, or in some countries a lack of legal clarity altogether, such as India, for example, where gambling is not banned but not allowed either. In Malta, meanwhile, merchant gambling licences can take six months to be granted, and others take a year.
Even once merchants have overcome the licencing roadblock, they’re faced with another – obtaining a merchant account from an acquirer. For high-risk merchants, this brings even more challenges.
High-risk merchant accounts are hit with higher expenses and financial risks
Typically, applying for a high-risk merchant account from an acquirer involves several administrative and documentation requirements, including obtaining notarized and apostilled incorporation documents, the licence information, proof of ID and address for the company and involved individuals, shareholder certificates, company organograms, requirements to undergo live verification checks for the company’s principals and attorneys, presenting a source of funds and a source of wealth for the company and its beneficiaries, as well as presenting a processing history for the last several months showing transaction volumes, fraud and chargeback rates.
High-risk merchant account parameters may differ by acquirer, but generally, high-risk merchants tend to process more than £/€20,000 in monthly volume, have an average card transaction value higher than £/€500, and a chargeback ratio higher than 0.9% of total transactions.
And of course, if a business is selling products or services known to attract high levels of fraud and chargebacks, that will also make the merchant high-risk by definition. Not only do high-risk merchants pay more to protect the acquirer from chargebacks, but they will also pay higher prices for each chargeback. If their chargeback ratio creeps up to or over 1% of total transactions, the acquirer could freeze the merchant’s account or terminate it altogether. This doesn’t just mean lost sales – it could put the seller out of business if they’re blacklisted by other acquirers, with no way to accept payments.
In almost all instances, high-risk accounts come with higher fees for the right to process transactions, including a higher initial set-up fee, sometimes an additional compliance fee, as well as regular monthly fees that are often double that of a standard merchant account. In addition, this may be accompanied by extra fees and fines from acquirers or/and the card brands for breaching chargeback-to-sales or fraud-to-sales limits defined in their rules. Throw in the potential of facing cardholder data leaks or customer location noncompliance fines, and you’re looking at spiralling costs just to be able to accept payments.
How to improve onboarding and payment acceptance
So now you have your licence, and your merchant account is up and running. How do you start attracting and onboarding customers, particularly if your brand is new to the market and not well-known?
What’s often neglected in facilitating business for high-risk merchants is how user-friendly the onboarding process is. Customers who want to sign up to a merchant want a simple and clear registration process, with quick ID and know-your-customer (KYC) verification, account confirmation and activation either through email, phone or social media channels. Nothing turns off a customer faster than a clunky, inaccessible interface, with endless forms to fill out and successive hoops to jump through. Bad UX design loses customers, lowers conversions and hits sales.
Having super-quick onboarding not only speeds up client acquisition but also reduces credit risk for the merchant because they can verify customers and, by extension, improve transaction acceptance and authorisation rates. At the same time, merchants need optimised platform UX design which is localised to each market as much as possible. Platform user design interfaces in Europe differ greatly from the kind preferred in Asia, for example.
Customers should have a wide choice of secure payment options, enabling deposits, transfers and withdrawals through payment cards, digital wallets and account transfers. It’s vital to optimise your checkout with secure 2-step authentication like 3D-Secure to bolster payment security for your customers. An expert payment service provider should be able to implement this without it damaging your checkout conversion rate. Things like page redirects or pop-ups can deter customers from completing transactions and damage the merchant’s conversion rate. Having seamless authentication will help secure a low chargeback rate and will boost conversions.
It’s a no-brainer to say that merchants processing multi-currency transactions through a variety of payment methods should optimise their checkouts and payment gateways with support for several languages and currencies. They should be able to handle cross-border transactions as seamlessly as domestic ones, including one-click payments, which protect customers’ sensitive data with tokenisation for maximum security.
Merchants need a stable payment platform to build trust
Whether a merchant is in the betting, forex trading, share trading or any other high-risk sector, building customer trust is paramount for continued stability and success. Funds deposits, withdrawals and settlements should be cleared as quickly as possible – the longer a customer has to wait for their money, the less likely they are to return to the merchant.
And to ensure quick funds transfers, a payment platform needs to be reliable and stable, and able to handle spikes in transaction volumes or capacity demands. Disruptions and platform downtime are conversion killers, so it’s vital that any payment gateway can handle unexpected surges.
In the event that a customer has a problem and needs to contact the merchant, responsive 24/7 multinational customer support through several languages is a necessity. Merchants too need round-the-clock support from their payment provider, to ensure they can tap into expert, tailored advice and guidance whenever they need it.
An automated, unified payment platform is the springboard for success
Merchants don’t have to do the manual labour involved in meeting licencing, compliance and KYC onboarding requirements by themselves. By using expert payment solution providers, these processes can be quickly automated to accelerate customer acquisition, streamline administrative processes and ensure the merchant remains in compliance at all times.
Staying compliant helps a merchant to maintain a good reputation with authorities, third-party providers and builds customer trust – all vital and necessary attributes to drive business growth. Also, when expanding into new markets, your payment service provider will already be familiar with compliance requirements, allowing you to get a head start and speed up operational launch.
A unified platform solution encompassing all payment methods eliminates the need for a merchant to establish relationships with multiple acquirers. Merchants face enough costs when trying to expand into new markets, and they shouldn’t have to be confronted with hidden costs from their payment provider. Platform pricing should be clear and transparent, and should be built with an extensive global network of payment method providers, to facilitate settlements and funds transfers to bank accounts, vendor payments and currency conversions using intelligent transaction routing for the best forex rates.
When dealing with multiple currencies, processing needs to be inexpensive, simple and fast. Strong anti-fraud management, transaction monitoring, data encryption and PCI DSS compliance should be standard components to reassure customers that their funds will be safe. It is also worth looking at the opportunities to outsource automated customer KYC processes such as ID checks, liveness check/facial recognition, utility bill checks and other KYC steps that a business might require, since there are plenty of providers on the market offering good KYC software.
With all these elements in place, high-risk merchants can swiftly jump the compliance and payment acceptance hurdles in their path, and begin to tap into the surging cross-border e-commerce marketplace, confident in the knowledge that their payment platform will be a springboard into greater revenues, stronger relationships with acquirers, and peace of mind that all their compliance hassles are taken care of.