Multilevel marketing businesses (MLMs) sell products or services through representatives who earn commissions based on their sales volume. These representatives recruit others to work under them and earn money on each sale these individuals make. The recruited individuals can, in turn, sign up others to work under them, creating many levels of commissioned independent contractors. Hence, the name multilevel marketing.
Credit card processing for MLM sites is available through vendors that offer high-risk payment processing. Here are several reasons why payment processing for multilevel businesses is considered high-risk:
The industry has a reputation.
There is nothing inherently wrong with a company operating based on an MLM model, and business owners can choose how they want to run their organization. However, to some, this model resembles a “pyramid scheme,” which is a scam from the outset.
In a pyramid scheme, there are many levels of people who recruit people under them and get them to convince others to do the same. To become representatives, recruits have to pay a fee that gets split among the higher levels of representatives. It sounds similar to an MLM business, but the difference is that pyramid schemes usually involve a company that doesn't offer a worthwhile product or service, or they charge representatives unnecessary fees for the right to work for them.
When a legitimate MLM business fails, it almost sounds like it was a pyramid scheme from the beginning. This has resulted in the industry’s negative reputation, making many merchant providers shy away from allowing MLM credit card processing.
MLMs typically have high chargeback rates and fraud.
An MLM relies on a high volume of sales to cover all the commissions it has to pay out. As more transactions go through an MLM merchant account, the likelihood of chargebacks increases.
High sales volumes also increase the potential for fraudulent credit card charges. In addition, since payment processing for MLM businesses often takes place online, there are many card-not-present transactions, which can lead to fraud.
Chargebacks and fraud can be costly and unhealthy for a company's bottom line, so merchant providers often decide not to deal with businesses that are prone to these issues.
MLMs are subject to heavy regulation and compliance issues.
Due to the nature of the MLM business model, this type of company is heavily regulated. MLMs have to follow strict guidelines to remain compliant with the law, and violations can lead to enforcement, which can include hefty fines that could hurt the business's cash flow. Merchant providers worry about companies that are heavily regulated since they may have trouble covering their fees down the line if legal issues arise.
Get credit card processing for your MLM business.
While MLM businesses are considered high-risk, they can still accept credit card payments. If you own an MLM, reach out to Humboldt Merchant Service. Find out how we can connect you to payment processors that welcome high-risk businesses, including MLMs. You can contact us online or call us at 877.387.5642 to speak to one of our representatives.
