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What a 'quarter century'
industry veteran has learned
about the high-risk merchant niche
By Steve Duniec contacts and help them solve this challenge. The high-risk
Payment Advisors LLC landscape was full of opportunity.
I started my career in merchant services in January Now, I devote my time exclusively to clients in the high-
of 1991. At that time, there were few business types risk space. I first tell anyone that the biggest difference
that would be considered high-risk merchants. from when I started in this business is that the opportunity
Obviously, ecommerce wasn't around. Reputational is immense. One reason is the Internet. However, it is
risk was an issue for many banks (processing payments where creative entrepreneurs have taken it that is the big
for a business selling sexually explicit material, for exam- difference. The bad news is that it has also brought in a
ple) and MO/TO was on the rise. corrupt, unprincipled element in many industries: people
who are more interested in scamming as opposed to
About four years in, I went to work for Chuck Burtzloff at building a solid, legitimate business. This makes it more
Cardservice International. Chuck was one of the founders difficult for the good merchants.
of the Bankcard Services Association, which shortly after
became the Electronic Transactions Association as you now The higher incidence of chargebacks and fraud makes
know it. In his wisdom at that time, he decided to pursue processors and banks review and analyze their
the high-risk industry that was out there ? merchants who underwriting guidelines from time to time and remove
had a difficult time getting approved elsewhere. certain merchant types. To people like me, that means
opportunity. The list of such merchant types is growing
It was a niche few others were involved in. We would every year.
approve most accounts on the front end without a lot of
scrutiny, and then watch them like a hawk after they were Solid margins, retention
boarded. We charged a premium for our services since
there was a lot of money spent on risk management. But what has changed and what hasn't? One thing that
hasn't is the margins. Margins are slightly lower than
CSI was later sold to First Data Corp. I became an employee 20 years ago, but nothing like what has happened to the
of First Data for 17 great years, moving through a few card-present industry. Those of us in the high-risk space
different vice president roles. I had a terrific career there, are still demanding high margins. On average 125 to 150
but decided about three years ago that corporate life just basis points is not uncommon in a high-risk portfolio.
wasn't for me anymore. Merchants will pay it and will increase shipping or bottom
line pricing to their customers to cover it.
A need for high-risk expertise
By the time they get to me, many of these merchants have
Over the years, I worked with many agents and ISOs who been shut down or are under threat of being shut down.
always asked me, "Where would I go to get approvals on And they value doing business with a bank that they feel
accounts FD won't approve?" So I decided to go back to my will allow them to continue to process as long as they keep
their noses clean.
Retention in this space is surprisingly good. If anything,
we lose merchants because their chargebacks shot up and
they were shut down. But we rarely lose merchants over
rate. When they feel secure, and you take great care of
them, they stay put ? or at least consult with you if one of
your competitors knocks on their door.
More scrutiny
What is different? Most ISOs, agents and merchant level
salespeople (MLSs) that come into this can't get used to the
fact that the banks that have an appetite for this business
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