MLM Merchants: Past and Present
Before the dawn of the digital era, a host of products where available through friends and neighbors—an industry we call multilevel marketing. Avon and Tupperware are two household names with many decades of reputation, though there are countless examples.
These companies operate by recruiting product fans to sign up as distributors. Not only do they make a commission on the products that they sell, but they are often incentivized to recruiting additional distributors as well.
Back in the day, MLM marketers would typically host events in person. Friends and family would be invited to try—and hopefully buy—the product. The MLM world has found new life and new opportunities in today’s digital climate.
Distributors actually have an easier job than ever of putting on events, as social media expands their reach past geographical bounds. Facebook and Instagram make it easy to spread the word about their parties, or even host them online.
Any Tupperware party attendee in the 1970s would have brought a checkbook to the event. Now, it’s become essential for MLM marketers to have reliable and secure credit card processing capabilities.
The Successes and Challenges of the MLM Industry
Thanks to this successful migration online, more people than ever are reaping the benefits of direct selling—some 20.5 million in America alone. The profits add up. In 2016, the Direct Sales Association estimated that $35.54 billion of revenue was generated through direct sales.
However, despite all of this money changing hands, banks are hesitant to get involved with MLM merchant accounts. Since this industry sees higher-than-average chargeback ratios and industry growth can be more than a little unpredictable, banks classify direct sellers as “high-risk.” Many simply refuse to work with them. That puts direct sellers in a tricky position if they need to process credit card and online payments.
There are still high risk merchant account providers who are happy to work with direct sellers. TailoredPay specializes in providing these MLM credit card processing accounts for high-risk clients, so you can rest assured that we will not turn you down simply because of the industry you work in.
Credit Card Processing is Essential for MLM Sellers
The majority of people working in the direct selling industry simply buy products from their parent company at a reduced rate, and then sell them directly to customers to make a profit. However, for those who are a little more ambitious, there’s also the opportunity to boost your income by building up your very own network of sellers, and receiving commission from their sales, too. Over five million Americans are currently running their own business in this method, and remarkably, the vast majority of them only work part-time- yet still manage to turn a significant profit. The only way this is possible, though, is through processing credit card transactions. If they can’t take these payments, then they can’t make money- it’s as simple as that.
At TailoredPay, we provide merchant accounts to all sorts of direct sellers. From those selling health and fitness products, to clothes, kids’ toys, and more, we don’t discriminate based on your industry. Instead, we help MLM companies large and small to access the tools they need to succeed. Start your application today, or for more information, feel free to get in touch with us directly!
How Do We Assess Your Application?
Entrepreneurs who are working with legal and productive companies will find that getting started with a merchant account can be an easy process.
To do that, an underwriter will analyze a whole heap of info, ranging from your past credit score to your business account details. This will allow them to gauge how much of a risk your MLM merchant account might present.
These are some signs that you’re a good choice for a credit card processor:
- Your bank balance is in the black
- You keep up with payments and pay off debt on time
- It’s a bonus if you have past successes to show
On the other hand, if the underwriter believes that you are an especially risky prospect, then they are more likely to reject your application or offer you higher fees.
As a shortcut to success, make sure you have your parent company’s Standard Industrial Classification (SIC) code. These international codes help both the government and potential customers immediately assess the business.
The vast majority of direct selling companies will be assigned the code 5963. An SIC code means that the government has assessed the company, so customers (and credit card processors) can be assured of your MLM’s legitimacy.
Here’s Why MLM Companies Suffer From High Chargeback Ratios
While most MLM companies are legitimate, there are many who aren’t- which ends up giving the entire industry a bad rep. One of the biggest warning signs of an MLM company that’s skirting the law is the structure by which individuals earn money. If it’s mainly through their own sales, then that’s a good sign. However, if most of your earnings are directly linked to the amount of others you’re able to recruit, then this should set of alarm bells. It’s more than likely that this company is actually a pyramid scheme, and not only can such schemes end up losing you a lot of money, but they are also against the law. Yet despite the efforts of the federal government, there are still plenty of pyramid schemes out there- so it’s up to you to think carefully before signing up to anything.
Since pyramid schemes rarely offer legitimate products, they also suffer from a high level of chargebacks. For instance, they might suddenly shut down operations and never deliver products to customers, or buyers may catch on that their purchase is a fake or doesn’t perform as promised. You should be extra-wary of any company that pays out more for signing up new sellers than for actually selling their products. If things don’t seem completely clear, or there is a surprising lack of stock to choose from, then there’s a good chance you’re dealing with a pyramid scheme- and you should therefore simply walk away.
Why Won’t Traditional Credit Card Processors Work With MLM Sellers?
The reason why credit card processors don’t want to work with clients who have high chargeback ratios is simple: at the end of the day, it is the processor who will have to cover the costs if the merchant can’t pay up. It also costs them a lot of money to keep on processing these chargebacks. They could even face fines from card companies if they don’t cut these troublesome clients loose. The card companies mean more to them than any given client, so if they have to make a choice, the merchant will always lose out.
The very limit for chargeback ratios is at most 3%. After this point, processors stand to lose money by keeping on working with the merchant, so their natural move will be to close the account immediately. Larger companies can get away with more chargebacks because they will have a higher volume of sales to begin with, but small and medium merchants may find that even a handful of chargebacks per month pushes their ratio to this point. It is therefore in your best interests to do all you can to avoid chargebacks, or it’s your business that will end up suffering as a result.
It’s Time to Start Fighting Back Against Chargebacks
Luckily, there’s one simple way to instantly fight back against high chargeback ratios: communication. Customers often file chargebacks when they feel wronged by a company, but if you are open to communicating with them and finding a different way of resolving their problem, they will likely change their mind about the chargeback. By focusing on providing high-quality customer service, and offering refunds or exchanges in the event that a customer is unhappy with their purchase, you won’t have to suffer from a high chargeback ratio.
It’s also a smart idea to ensure that your company name appears clearly on a customer’s credit card bill. A surprisingly large number of chargebacks are simply down to the customer forgetting that they made a certain purchase. They’ll see an unfamiliar company name on their bill, and figure that the purchase was made by someone else using their name. On the other hand, if everything is clear, then they will be more likely to remember making the purchase. You can build on this by also emailing customers a digital receipt- just be sure to include all your contact information so that they can get in touch if there’s a problem. Remember, an excessive chargeback ratio could lead to your business shutting down altogether- so it’s worth pulling out all the stops to keep that ratio low.
In both the U.S. and in many countries across the globe, businesses are assigned a special four-digit code to help both the government and potential customers to immediately asses the main role of the business. These are known as Standard Industrial Classification, or SIC codes. The vast majority of direct selling companies will be assigned the code 5963, and this can be a big help in checking whether or not a business is legit. An SIC code means that the government has assessed the company, and often illegitimate businesses will simply be shut down at this stage.
Build Your Business With TailoredPay
If you’re working in the MLM industry, then it’s more than likely you’ll need a certain set of merchant services to run your operations- most importantly, a merchant account. At TailoredPay, we specialize in working with clients in high-risk industries, so you don’t have to worry about getting turned away just because of the nature of your work. If you apply today, then you could be approved by tomorrow, and in most cases it only takes a maximum of 48 hours to secure approval. Don’t put limits on your business by just taking cash or check payments. Instead, it’s time to start taking card payments right now- so be sure to sign up for a merchant account with TailoredPay today!