I have coined the phrase "managed risk" merchant to correctly define and segregate the stigmatism that traditional Card Not Present (CNP) merchants obtain when labeled as "high risk" merchants.
This unfair labeling hurts the growth and innovation of our growing e-commerce industry. A "managed risk" merchant is defined as a CNP merchant with a higher chargeback count than a Card Present (CP) merchant.
CNP merchants are unfairly lumped into the same category as "high risk" merchants whenever there is a spike in chargeback activity. High risk merchants have clearly defined MCC codes (Merchant Category Cod, or a four-digit number assigned to a business by credit card companies when the business first starts accepting one of these cards as a form of payment) dictated by the card associations, such as 5996 (Telemarketing) and 7995 (Gaming).
Even though this delineation exists, CNP merchants are unfairly placed in this category and treated as a high risk merchant. Once labeled a high risk merchant, obtaining merchant services for the business becomes nearly impossible and could ultimately put a merchant out of business.
Brad Geisen, CEO of foreclosure.com was one of the first companies to create real-time tools for consumers to identify foreclosed properties for sale by tying in map records, bank information, city data and real estate data.
This innovation has led the charge for merchants of all sorts to create tools that we utilize in our daily lives. Unfortunately, many consumers take advantage of the consumer friendly chargeback policies of card issuers/card associations and chargeback their transaction after utilizing subscription services. The merchant basically experiences online theft of their subscription service. The card association laws require signature or proof of delivery for a transaction to be considered valid, which is impossible in a CNP environment.
Hence, companies such as foreclosure.com are not only forced to refund the money they are also hit with a chargeback against their account. The higher the count of chargebacks, the higher risk associated with the account. Payscout views these CNP merchants as "managed risk" and if managed properly can avoid the stigmatism of "high risk".
We recommend taking the following steps for CNP merchants. Choose a registered ISO that specializes in CNP merchants. Banks do not specialize in CNP merchants. Also, provide the highest level of customer service to your customers, such as phone, email and chat. Utilize additional security features when conducting a CNP transaction—AVS CVV2, Verified by VISA, MasterCard 3D secure.
Additionally, present the clear value of your product and service, and have a personal relationship with your merchant service provider that understands your business model.
Cleveland Brown is the CEO of Payscout.