As discussed in an article earlier this month, the direct selling industry is already booming in the US, and is expected to grow further as retail and spending shifts further away from physical shops towards eCommerce and mCommerce.
However, despite the overall growth of direct sales channels the industry remains plagued with issues that present significant challenges to merchants. Direct selling businesses struggle to find a footing in the industry, with as many as 85% having to close their business within five years.
There are a number of reasons for this, including many direct selling merchants’ inabilities to scale effectively, but one of the most problematic is the closure of merchant accounts by card providers. The inability to process card not present payments is crippling to direct sellers; avoiding fines or conflict with card associations is imperative, as is only partnering with card providers who have a detailed understanding of the industry.
The looming threat of chargeback fraud
The greatest obstacle hindering the growth of direct selling businesses is their propensity to generate high chargeback levels, where card holders generate a dispute with their issuer in relation to a charge. The most common reasons for this are a dissatisfaction with their purchase, or that fraudulent activity is taking place on the account.
Being unable to identify fraudulent behavior before it occurs blights small businesses’ in general, but direct sellers are particularly susceptible to this issue. Banks are aware of this and are therefore extremely reluctant to onboard and underwrite merchant accounts for these businesses for this reason. Where direct sellers are onboarded, accounts are heavily scrutinized with regards to chargeback rates; any indication that a merchant is particularly vulnerable to chargebacks and chargeback fraud poses the risk that the merchant could have their account closed. The higher the chargeback rate is, the greater the likelihood of drawing negative attention to the business.
Typically the majority of online merchants aim to limit their chargeback rate below 0.5%, with as many as 40% aiming to achieving a chargeback rate of 0.1% or below. However, fewer than half (47%) of merchants report that they are able to meet the 0.5% target rate, and fewer than one fifth (18%) claim to achieve a chargeback rate of 0.1% or below.
The value of partnering with an experienced provider
For direct selling businesses that are already operating with the threat of having their merchant account closed, combatting chargebacks is of paramount importance. This is best done by partnering with a card provider with a strong, specific knowledge of the direct selling industry, and with the digital tools at its disposal to directly combat fraudulent chargebacks.
Paysafe has many years of experience in this field, offering one-to-one support for direct sellers as they navigate the financial pitfalls of the industry whilst also scaling their business. Our leading risk management capabilities and industry expertise enable direct selling businesses to focus on growing their operations without having to continually look over their shoulders in concern as to whether their merchant accounts are under threat.
In addition to that industry experience, Paysafe sets its direct sellers up for success by partnering with local acquiring banks in order to process payments in multiple currencies. In this way, direct sellers gain access to global capabilities of payment processing.
This experience in managing the chargeback process and identifying fraudulent activity is reflected in the data. Chargeback rates for direct sellers partnering with Paysafe average 0.14%, compared to an industry average ranging between 0.4-0.65%.
This has enabled direct selling merchants stay in business longer, with the average merchant life expectancy exceeding 30 months.
Diversification of accepted payment methods dilutes risk
Of course, for direct sellers accepting card payments that are concerned about having their merchant accounts closed, one solution that provides some ease of mind is diversifying the number of payment methods accepted.
Plugging into a solution offered by a single provider that enables payment acceptance from digital wallets such as Skrill and NETELLER, and through cash replacement systems such as paysafecard, in addition to card payments, eases the burden of dependence direct sellers feel towards card providers.
To learn more about the challenges facing the direct selling sector, and explore how Paysafe can help your business, download our latest whitepaper Tackling the Payment Problems that Keep Your Direct Selling Business from Scaling.