Finding the balance between speed and risk is a high wire act for processors when it comes to paying the middlemen — namely ISOs and agents. T1 CEO Donald Kasdon weighs in on how real-time reporting and vigilance (of the human kind) can ensure merchant portfolios are healthy — and middlemen get paid the same day.
Amid the speed of online commerce, one thing remains slow: paying the middlemen in the channel, the ISOs and the agents.
Painfully slow, in fact, as commissions wend their way from card processing firms typically 30 to 45 days after a transaction is done.
It’s a safety net of sorts, especially where high-risk merchants are involved. The threat of chargebacks is ever present and, at times, some merchants can shutter operations without warning.
That means for processors, high-risk merchants can spell high risk in paying the channel that brings in new business. The 30- to 45-day payout schedule is a bit of a safety net, mitigating the risk of paying out commissions on business that becomes more chargebacks than legit customer charges.
In an interview with PYMNTS’ Karen Webster, T1 Payments CEO Donald Kasdon pointed out that real-time information flow, rules, vigilance and quick reflexes on the part of the merchant processor firm can reduce that risk while also accelerating the commission payouts to as frequently as every day.
Kasdon told Webster that T1 is the first processor in the high-risk arena to pay its partners and agents daily.
“The ‘why’ is simple: It’s a compelling competitive position,” Kasdon said, “and money talks.”
The “what” is more complicated.
Same-day settlement can create the unintended consequence of attracting the wrong type of business through agents who are more motivated by getting daily payments than on the stability of the business. Understanding that, Kasdon said the T1 team spent the last two years building a real-time reporting system that can flag suspicious activity and quickly shut off those businesses. That aberrant activity can be spotted with haste, since the data, he said, “is essentially live.”
The proof, Kasdon said, is in the results. His chargeback rate on high-risk business is 10 to 20 basis points a month.
The 72-Hour Vetting Process
Kasdon said his firm is one of the first stops for merchants who know they fall into the high-risk category, often “after they’ve tried everything else.” Kasdon explained that his definition of high-risk is specific to the type of business, and the model that underpins that business.
For instance, Kasdon said one of the businesses that T1 considers high-risk is computer help centers. Subscribers, he said, pay a monthly fee to make sure their laptops never get in trouble –however, after things seem “fine” for a few months, they simply turn off the subscription service. Revenue stops, and so does the need to process payments.
On the flip side, Kasdon says, there are businesses that some may feel are too high-risk, but that Kasdon will take on. For multi-level marketing companies (MLMs), Kasdon said T1 can drill down to the individual producer level inside of a large volume of transactions from the MLMs themselves, in order to shut down individual “problem” accounts without impacting the company or other producers.