Living The Red Life - Mastering Payments: Unlocking the Secrets to Sustainable Growth in Business

Episode Date: March 25, 2024

In this episode, we dive deep into the world of payment processing, where stability is king. Discovering that payment processors prefer steady growth over sudden spikes, emphasizing the need for consistency in business performance. Financial stability and risk management are top priorities for processors, requiring startups and ecommerce businesses to prove their financial strength to gain trust. We also discuss how useful it can be to communicate everything to you're processor, so when they see huge spikes, they will be less inclined to hold your money, and how building a reliable track record, known as "seasoning," is a key factor in earning approval. By understanding these principles, businesses can form solid partnerships with payment processors, paving the way for sustainable growth in the digital marketplace.In This Episode:Payment processors prioritize consistency over rapid growth.Rapid growth can be alarming to payment processors, as it raises questions about its origin and sustainability.The ideal growth rate for payment processors is around 5 to 8%.Sudden spikes in growth may raise concerns about financial stability.Understanding the financial capacity to support growth is essential for startups and ecommerce businessesSeasoning of the account (i.e., demonstrating a track record of consistent performance) is critical for approval by payment processors.Payment processors value transparency and communication from businesses regarding their financial status and growth plans.Connect with Rudy Mawer:LinkedInInstagramFacebookTwitter Connect with Ruben:https://www.goatpayments.com/

What every payment processor is looking for is consistency. They don't want you to go from zero to a million in two months. Yeah, yeah, yeah. It scares them. They don't understand why that growth is happening or how it is happening. In a perfect world, they would like you to scale at around 5% to 8% growth. They don't want you going from zero to a million, especially if you, you know, as a newer startup or as an e-commerce business,

you may not have the financials to support that. And that's all they care about, right? Risk mitigation. The consistency and the seasoning of the account is critical. My name's Rudy Moore, host of Living the Red Life podcast. And I'm here to change the way you see your life in your earpiece every single week. If you're ready to start living the red life,

ditch the blue pill, take the red pill, join me in Wonderland and change your life. Guys, what's up? Back for another episode. And I have the Tom Brady of payments right here, the goat of payments. So when I say that, you're probably going, what the hell? Well, today we're going to dive in to the world of keeping your money. As entrepreneurs, we work so hard to make money. And then sometimes we get a slap in the face and the processor says sorry i'm gonna freeze your money and this is the guy that saves entrepreneurs when that happens welcome to the show dude i'm so excited thank you really good to be here thank you so much so look we we you know speak offline work offline and i obviously

work with thousands of entrepreneurs where they work so hard to get all their money, right? Earn their money. And then one day they log into an account or they get an email from Stripe or PayPal and it says your money has been frozen. And I've gone through this many iterations first time in my fitness business, about 120 grand. Luckily I had like a million in my bank account. So I was like, whatever. But then over time, as we've scaled, when we've had less cash flow and we've reinvested it, one time we had 400K frozen caused massive problems. So that was a wake up call to me about like, OK, I got to figure this stuff out. Right. And I'm sure you've heard lots of horror stories. But if entrepreneurs don't understand this and haven't gone through it, can you kind of just summarize what you do in the world of the payment processor

and what can happen? I can. And just so we're fully aware, we don't just rescue clients from Stripe. Okay. PayPal too. But we do, it happens all the time. It's a sad part of the business. Merchants like yourself and others are scaling fast. You fall outside of Stripe's sandbox, so to speak. And the minute you go out of that sandbox, it's automatic. We'll freeze your money. We're going to figure it out later and they don't really care what happens to the business and what your cash flow is like what the situation is and then you sort of get stuck in this space where you're just waiting for answers panicking during that time as well yeah i mean so i i think like what i've learned of this world over 10 plus years is stripes great you're a brand new entrepreneur you're setting up starting out but what they never teach in entrepreneur school is once you're making you know a few hundred grand a year you probably shouldn't be on Stripe and you should go to a more you know sort of VIP service like you where you're actually you know the customer's name they can ring your office speak to your team and they can figure this stuff out. Because Stripe, which I get, I was the owner of Stripe. I'm like, I'm a numbers game kind of guy, right? I care

about the 99%. And that's kind of how big companies are, PayPal and Stripe. So it's kind of like Facebook. When you get a problem with Facebook ads, they don't care about you because you're like a drop in the ocean. And that's what I think we don't realize as entrepreneurs is, to us, freezing $300,000 is a big problem. To Stripe, they do that every day to hundreds of merchants. They don't care. So I think understanding Stripe's a stepping stone. And if you're listening to this now and you're processing hundreds of thousands of dollars, don't be on Stripe and PayPal.

Come to someone like you, right? Well, there's a lot of truth in that. To me, the more important issue is to, as an entrepreneur, to always have redundancy. We always hear, don't put your eggs in one basket. In the payment space, we always believe, even if you're with Stripe and everything is good, have a backup merchant account. Have some redundancy. Make sure that you're never in that situation where all your eggs are in that one basket. That's great.

Yeah. So look, if you're listening to this, like I think understanding one thing I learn is like say Stripe does close you down or freeze you or whatever. It's not just like I go make a new account and I'm selling again tomorrow. Right. Like I learned the hard way. It takes a couple of weeks and you have to submit bank statements and all that jazz. And then like if you're frozen on another account right now, it's like even harder to get another account going. So what you're saying is absolutely correct is like you should have and you want to season them a little too. Right. That's right. That's exactly. Can you explain what that is for people? Well, but by season, you want to have a certain... what every payment processor

is looking for is consistency. They'd never... and the same goes for Stripe. They don't want you to go from zero to a million in two months. It scares them. They don't understand why that growth is happening or how it is happening. And so they would like you, in a perfect world, they would like you to scale at around 5% to 8% growth each month. Per month, yeah. Right. They don't want you going from zero to a million. Yeah, yeah. Especially if you, you know, as a newer startup or as an e-commerce business, you may not have the financials to support that and that's all they care about right that risk mitigation

So the consistency and the season seasoning of the account is critical. Yeah What I was fascinated for us was we signed up a newer business into this processor And we said we were gonna do 100K a month or something. And then we were doing about 1.3 million a month. And they go, well, we're freezing your account for an audit because you're doing 1.3. And we had moved banks from Bank of America to Chase and updated all our info, which caused this audit.

And then they go, oh, we're freezing everything because you're doing 1.3 million a month and you didn't tell us. Like, what do you mean i didn't tell you you're a processor like you literally see my money every day you never at least they never i didn't realize i had to go hey by the way i've you know i'm growing i'm right i'm outside my original parameters yeah yeah yeah and and that really i can't tell you it happens all the time dude crazy and it literally probably calls me like $5 million in damages over a two-year period because of it or a year period.

Yeah, because it's not just the money that you held. That doesn't matter, right? And when I was a smaller company in my fitness days and I had a bunch of cash flow and I only had 15 employees, I was like, whatever. I just like, they held it, gave me back and I put it in real estate. I was like, okay, whatever. like, they held it, gave me back, and I put it in real estate. I was like, okay, whatever. It was like full savings, you know? But then when I had 100 employees, not 15, it was like, and we were spending a million a month.

It was like a bigger problem. And that's exactly right. And by the way, it happens all the time. You're not alone. It happens all the time. We get probably 10 to 15 clients every month with this scenario you just described well i feel that's how you probably get half your clients right because most sadly most entrepreneurs aren't proactive they're reactive so they're like oh i'm just going to

sit on stripe until something bad happens and then it's like red alert red alert red alert and then that's when they look to change it's's like getting an attorney. Most entrepreneurs don't have an attorney until they get sued. And then the attorney will come back. I was just going to say, most merchants don't realize they have a merchant problem until they have a merchant problem. Yeah. So what are some tips if they're an entrepreneur to look after their money that they're making around disputes, refunds, finding the right processor, merchant, keeping it healthy. Can you kind of give some tips on that? I can't. So number one tip, always have redundancy. Never rely on one payment processor. And that goes for us. You should never only have one merchant account if you're scaling

a new business. So if you're an entrepreneur listening, they should definitely have two merchants and a second one ready to go, basically? No question about it. Even if you started on Stripe and you got your quick approval and everything seems great, do not wait until there's a problem. Get a backup merchant account almost from day one. Yep. Good. What about handling refunds and disputes? So the card brands, meaning Visa, MasterCard, Discover, American Express, they're pretty strict with the amount of refunds that they want to see on a merchant account. And this all falls under the umbrella of what they call customer dissatisfaction. In other words, if somebody is returning your item, they look at that as being a dissatisfied customer.

So they take the refund ratio and they add the chargeback ratio together and they sort of come up with this formula for customer dissatisfaction and they don't want your charge backs to be over one percent and they don't want your refunds to be over about 10 to 12 percent sure and it's funny because i know you know especially like affiliate marketers and over there you know they're running like a five percent dispute rate or something crazy right and that's like they're just bouncing between processor and processor. And we've always kept our refund rate below, you know, a couple of percent. So we're pretty lucky in that scenario. But I know a lot of entrepreneurs don't even track it.

They don't have a good system for it. Let's talk about disputes now because we've had to coach a lot of our clients. Like we had to learn how to handle disputes because in my early days when I got a dispute, I would just click approve. I didn't understand what to do. And I just approved all of them, even if I had like given the service and done everything. And then I eventually grew my team and then I hired, you know, I actually paid some consultants that worked at card companies

to like train me on how to handle disputes. And I learned what you have to gather to actually handle the dispute. And generally responding and winning, obviously, is better than just giving up on all of them. So what would you say for handling disputes? What's the right way to do it? Well, OK, so the right way to do it, the card brands, again, they want you to respond to every chargeback.

Yes. As far as they're concerned, they feel like you should be responding to every chargeback because you don't want to lose that money. Yeah. A lot of merchants don't follow that, and they just let the chargeback. Yeah, that's what I did for a long time, yeah. Right, because they just look at it as a cost of doing business, and they're moving on. In the last basically 24 months, there's a lot of new chargeback tools. One was actually put out by Visa, which is called Rapid Dispute Resolution, RDR. MasterCard's version of that is Order Insight.

And then you have all these new companies over the last five or six years that help a merchant manage their chargeback, which is a whole other aspect of outsourcing your chargeback management to these types of companies. to you know i went from when i started so i started to do all the disputing stuff and we won like 15 20 and now we've got a system where we win like 50 of the time which i think is pretty high right like uh if you're doing it right you should be winning 50 to 70 even 80 oh wow yeah so what are some tips to actually handle the dispute so the tips are for in a card not present e-commerce environment, the easiest tip is you must have address verification service on every transaction. Okay. And that's something you have to add or your processor should do? So the address verification is within the payment gateway itself. there are fraud settings in the payment gateway such as Authorize.net, NMI, USA ePay. You want to make sure that your fraud filters

are accurately set because if the address verification did not match on a transaction, it's an automatic loss. You are never gonna win that chargeback. And does Stripe do that naturally? like stripe does do that stripe has some has their fraud filters in place okay and in this case of course stripe is the gateway sure sure yeah so there's there's no third party there but you want to have your address verification settings yeah you don't want to ship a product to any address other than the address where the credit card bill goes you know you don't want to ship a product to any address other than the address where the credit card bill goes. You know, you don't want to ship product to someone who's buying something

for a friend, because most of the time those turn out to be charged back to fraud. The simple rule of thumb is if it sounds too good to be true, it probably is. Yeah, yeah, yeah. And what about uh coaching consulting like education services we have a lot of coaches and consultants and it's like harder to prove like we have you know harder to prove the services are fulfilled well i'll tell you one of the biggest issues with chargebacks is actually what we call friendly fraud where the customer is receiving the product or service, and they've gotten everything that they wanted to get,

but they dispute the charge anyway. Sure, yeah. And unfortunately, it's very difficult to protect against friendly fraud because the card brands are so much friendlier to the cardholder than the merchant. We've learned legal contracts, recorded Zoom calls, all of those things help a lot for us. Absolutely. So your terms and conditions have to be very tight. The stronger your terms and conditions on the checkout page, the easier it is to fight and win a chargeback. Are there any specific terms around dispute that you can add,

or it's just general terms? So you want to make sure that your refund policies are properly disclosed. You want to make sure that anything that the cardholder has agreed to, that they have checked that box agreeing to those terms and conditions. And when you're fighting that chargeback, you send in a copy of the terms and conditions showing that they did approve and accept the terms and conditions. Yep. Okay. You also want to track the IP address.

You want to submit any information you may have on that transaction, any email exchange. Zoom recordings. Recordings. Recordings. You really can't submit a recording on a chargeback because they don't allow audio. Or the transcripts and stuff. Transcripts, for sure, yes. Written transcripts are absolutely acceptable.

And I think we do screenshots of them on Zoom with one of our staff. And that's perfect. Yeah. The more that you can show that this is the cardholder it was legitimate you performed your product or service the greater likelihood you're going to win that charge one of my friends too that does millions we i think we added this is like he even with coaching and stuff sends like a small book or something with an ip a tracking address because he said that helped him win a lot more and that's true anytime you can anytime you can involve a physical good in your service and show that that's been fulfilled so

that's a little bit that helps yeah if you've got a 10k program send a 20 workbook with like tracking right that's a great idea that yeah so we do that okay absolutely and so people listening to this if they're listening and they're like, oh, I'm on Stripe or I've been with this one processor for years, how hard is it to move over? Because I think that's when we tell clients they don't have a tech guy or their tech guy doesn't get it. They don't have a CFO.

So if they're in that intermediate one to five million stage and they don't have a big team, and it's probably going to be them figuring all this out. How complex is it? So great question. In 95% of the cases, it's super easy. The same connection that you would have made connecting to Stripe, you're going to make connecting to a different payment gateway. Some of the common gateways, like I mentioned, are NMI, Authorize.net, FluidPay, USAEPay, CyberSource. And the technical integration is basically very simple. Sure. Okay. And what about paperwork, all that sort of stuff? Is there a lot of admin? Well, so you have the same type of application that you would fill out for Stripe. You would fill out for any merchant account. There are some supporting documents needed at the time of the underwriting and the

application submission. Typically, we turn those around in one to two days. Sometimes you're missing a voided check or sometimes you're missing articles of incorporation. But if you're working with a good underwriter and you submitted a full package, we're going to have you approved in 48 to 72 hours. And what about fees? Like, do people ever save money moving from Stripe or PayPal, or are they all pretty standard? Absolutely. But it does depend on the situation. Yep.

So we typically save the average merchant. And remember, too, it depends on the risk profile. Say we're doing $10 million a year in coaching. Do you think you'll save much money versus Stripe? Well, Stripe doesn't like coaching. Yeah, sure. As you probably know. Yeah, yeah, yeah.

Or Willard. But yeah, typically we're about 50 basis points, a a percent lower okay than what stripe's gonna do quite a lot on 10 million yeah 10 minutes a lot of money yeah yeah yeah and i think to me it's not even the money after all of this bad experience like i wish i could go back in time and like learn this because it's the ripple effect and the stress and the time and the what it causes right that's right it's the aftermath Yes. And having that money held, not being able... The biggest thing with Stripe

is you can't talk to anybody. You communicate. It's the same with Facebook ads when they ban your account. That's exactly right. You cannot get a human being on the phone to plead your case. Yeah, yeah, yeah.

Right? And that's, I mean, not to tout us as a company, but Goat Payments, we specialize in white glove, one-on-one, consultative. All our guys, we're 24-7. We talk through issues. We have our risk department on the phone with our merchants.

And our goal is not to keep your money, but to help you keep making more money. Sure. I love that. So any final words for people listening, entrepreneurs, when's a good time to move over to you? If they're only making 20, 30, 40 grand a month, should they move over off Stripe or when should they do that switch?

You know, I recommend redundancy almost from day one. Okay. Because you don't know if you're gonna be 30,000 or three million the next month. Yeah So I my answer is early on. Yeah as early as you can and also know that Stripe is very conservative. They don't want chargeback ratios Above a certain level or they're just gonna trap your money. Yeah, which is that's what 1% generally

Yeah, yeah just going to trap your money. Yeah. Which is what? 1% generally? Yeah. Yeah. Right. So everyone check now if you're listening and you're around that floating around that 1%, that's when, and it's often without warning too, right? It's just like you wake up, hey, 25% has been frozen and sometimes 50% sometimes- Or 100%. Yeah.

Yeah. Yeah. I look at it like this. You wouldn't put all your money in one bank. Yes, or one investment. Or one investment. And you need to look at your merchant account in that regards. I'd actually say this is worse because at least with a bank, if the money's gone

missing, you can walk in a branch and say, where's my money? Strive, you can't do anything. You'll just get an email. No, you're not. You're at their mercy. Yeah. I mean, I could tell you, we could sit here for more and more time and I could tell you one horror story after another of various clients. And we're talking furniture stores.

It's not just... Everything, yeah. Everything. I think also I've learned, I think we live in this dispute culture, right? People will just be like, they won't even sometimes ask the company. They'll just go like, I'm just going to dispute it. Because the banks make it so easy to just like, oh, okay, yeah. That is so true.

I actually blame the card brands for all of their commercials. Oh, it wasn't you. Just dispute the charge. You'll have your money the next day yeah there's it's for me it's a sad situation because they care more about the card holder than the merchant well i actually think there should be a law where it's fraud if someone disputes it knowing they've had services or something i agree because there's no law right like we have people dispute and it's like we've got 10 weeks of zoom recordings and then they'll say services not rendered or didn't show up or fraud.

Right. Exactly. I think they should get flagged too. That's that friendly fraud or they expected to get rich overnight. Yeah. And they had to work. They ended up not getting rich overnight and all of a sudden it's your fault. So they dispute.

I 100% agree with you. That is the fraud. Yes. It's the fraud of the fraud. But yeah, it should be that. Yeah. So fascinating. So guys, I've wanted to do this for a long time, but you finally made it to Miami and

we got our studio set up. So, you know, a lot of our sessions and talks and guests are all about making money. But I try and throw in a few about how to keep your money. That's right. And part of keeping your money is like legal and attorneys and insurance. And this is a part I've not been able to talk about yet. And obviously, we've been friends for many years. You've helped me through situations. And I've had good experience with more smaller private companies like yours and then terrible

experiences with the big companies., just can't get anywhere, like you said. So guys, if I could go back again, I would never go with, like I'd maybe start with Stripe for a month and then always move to someone that you can contact that sees you as a person. Or just have that redundancy. Always have that backup plan in place. As a new entrepreneur, sometimes you don't understand how important financials are. Of course. And bank statements and liquidity. And most entrepreneurs do not understand that a merchant account is the equivalent of a loan.

Yes. Because, as you said, the cardholder has up to six months to dispute that charge. I think that's what I learned, too, is the bank sees it, which fascinated me, or the processor or whatever. They see it because they told me this when I finally got to them or I spoke to someone else and it was like, they see it like you're going to vanish one day and have $2 million in potential disputes. Whereas obviously me with my offices and being a good person and a big brand, I'm not just going to move to Thailand one day and say, screw all my clients, right? But that's like, apparently, that's how the processors see it, right? That's their risk. It's like, you could vanish one day, you have all these payments that you, and then that's why they freeze money because they're like, if they get any warning flag,

they're like, oh my God, that, you God, let's hold the money just in case. And that's a really good point. And one thing we didn't discuss earlier, which is just understanding in general how payment processing works. Because whether it's Stripe, whether it's us, whether it's your bank, whoever processed those transactions is on the hook for that money. And if they can't get the money from you, they're out that money. And that's where the underwriting comes in, the risk management comes in. And one other piece of advice, going back to your question about any suggestions, is communication is the most important thing. Make sure you're communicating with your processor. I'm about to have a big event.

I'm about to have a big month. Big launch, yeah. Big launch. Adding a high ticket. I'm putting a product on sale, and I expect sales to triple. Communication is so important when it comes to your merchant account and any variation. That's great. That's great. That's great.

Cool. All right. Well, that's a great place to finish. If they want to learn more about you, look at that, building that second account or moving over to you. Maybe they're on here like, holy cow, I'm on Stripe. And I'm worried, you know, how do they do that? So just call me on my cell phone.

Three, should I give you my number? We'll put it in the show notes. How about that? And the website? Website is Goat website is goat payments greatest of all time g-o-a-t payments.com we're the tom brady of payments i love it and we look forward to working with anybody that wants to do business guys don't sleep on this because i promise one day you'll get slapped in the face like i did that's why i'm here teaching you because that's the whole point of mentorship and podcasts. I appreciate all the gems and wisdom and it's great to break it down in a third grade level for people because they don't teach this in entrepreneur school. And the truth of the matter

is anybody that has a merchant account should know these basic things. Sadly, 90% of them do not. I didn't till I had to learn, right? learned not a problem yeah yeah it's one of those things guys I hope you enjoyed today's episode go figure this stuff out spend two hours because one day you will spend 200 hours on it if you don't I promise you because that was me and until next time keep living the red life