A processor preps for the next generation of high-risk clients

Processing.com has 25 acquiring banks lined up as its transaction network, creating a safety net for dealing with high-risk merchants.

A few years ago, processors giving high-risk merchants an opportunity to accept card transactions meant that some were dealing with adult content or gambling sites, or possibly gun shops, marijuana dispensaries or non-mainstream medical or nutritional supplement providers. The high-risk category has now expanded to include cryptocurrency exchanges.

While avoiding most of those sectors, Los Angeles-based Processing.com has still carved out its niche with gambling sites and cryptocurrency, strengthening it recently in establishing a partnership with 1xBet, a major online sportsbook and casino with more than 400,000 registered users. Processing.com has the goal of increasing the number of accepted transactions through sites like 1xBet.

"We have a core of about 25 acquirers, but we are not going to activate all 25," said Matthew Harrod, vice president of Europe for Processing.com. "For the most part, clients just need one, or maybe two or three, to have a transaction accepted."

Some of the complex industries such as gaming and online casinos are not considered high risk in Europe as far as regulations go, and that is where the bulk of his company's gaming business takes place, Harrod said. "But one acquirer may sometimes give the merchant a 'soft decline' or a 'do not honor' code, and then we can move it to another acquirer who can maybe accept it."

Processing.com is keeping a close eye on the development of cryptocurrency, most recently becoming a processor for investor transactions around cryptocurrency exchanges. It currently works with the Coinsquare cryptocurrency exchange in Canada.

"We are looking to sign on more large customers in the cryptocurrency sector, and will focus on the U.S. in that sector as well," Harrod said.

"It's such a moving target at the moment," Harrod said of the exchanges. "There are changing regulations to consider, the banks' view of it all, and various compliance changes. But it's gaining momentum and we want to be one of the first movers in that sector."

Much of it depends on national or local regulations, currencies and other factors. The company's core business is in processing Visa or Mastercard transactions, and it serves traditional e-commerce merchants and some government entities as well.

"I do believe there is a market for higher-risk acquiring," said Gil Luria, director of research for equity capital markets at D.A. Davidson & Co. "Most large acquirers try to minimize their exposure to certain sectors in order to avoid regulatory scrutiny and simplify their processes."

Such caution leaves a market for acquirers that are willing to customize their process for specific higher-risk verticals, Luria said.

"In the past, some of this market has been served by PayPal, which has particularly strong security," he added.

Processing.com wants its security to stand out to its clients. When a customer sends a transaction to the Processing.com gateway, the company does a series of fraud checks to complement those already in place from the merchant.

"We are also making sure that a customer is not overspending on a gambling website, because the gaming company has to work with regulators on that aspect," Harrod said. In addition, there are hundreds of checkpoints before even sending the transaction to an acquirer because "gaming companies don't want to be seen as a soft touch on the chargeback side of things," he added.

In trying to increase transaction acceptance for high-risk sites, Harrod said his company's research indicates merchants see a 5% to 10% uptick in approved transactions among those that would normally be unaccepted.

In the payment processing business for eight years and a registered ISO with Citizens Bank N.A. of Providence, R.I., with offices in the U.S. and U.K.,Processing.com has seen e-commerce companies encounter and overcome various challenges to their business models.

The most recent, Harrod said, is the General Data Protection Regulation that took hold in Europe in May and affects all businesses with European consumers. The regulation essentially puts consumers in control of their personal data in terms of how long companies can store it and what they can use it for.

"In the gaming industry, the compliance manager wants to be compliant about the rule and not store data, but the marketing manager needs that data to market promotions and develop different angles for promotions," Harrod said. "They would want the data from customers from over the past six to 12 months."

Still, the gaming industry is open to better understanding GDPR and determining how to best apply it to its businesses, Harrod added.