Online Businesses Run Too Many Risks

Online businesses run too many risks with little to no reward. These negative ROI risks can cause them to go out of business or, at the very least, fail to reach their potential.

At Vendo we see ourselves as a professional sports team. Our sport is financial technology.

As a team we have “plays” that we run. We’re going to describe some of the plays that minimize risks for online businesses so they can reach their potential. The goal of our team is to win by outperforming in the league / market. Our competitive advantage is the way that we use data in our plays. We’re like the Oakland A’s in Money Ball, but our “ball” is actually money.

So let’s get into the risks and the plays. There are three types of risks online businesses run related to online payments:

Money

Let’s start with money. People who operate online businesses risk having their funds frozen. Most would go out of business in just two weeks if that happened. It’s an existential risk: Don’t handle it well and you’re dead.

What can cause your funds to be frozen? There is one main cause and several smaller causes.

The main cause is that the bank itself stops doing business with you. This can happen because the bank no longer can / wants to serve you. Either the bank took poor decisions or you made choices that lead to you being a bad customer for the bank. If you have been in the online business long enough then you have experienced one or the other, probably both.

What plays do we run to prevent your funds from being frozen because a bank no longer can / wants to serve you?

First, we develop relationships with multiple banks to create redundancy. You don’t get into a commercial airplane with just one engine, because, if it fails, you fall out of the sky. For the same reason we don’t work with just one bank. Our play here is to maintain healthy, strong relationships with multiple banking partners. If one fails, for whatever reason, you are going to be fine. We would see it coming and be able to avoid a negative impact on your business. The key to this play is investing in creating and maintaining multiple good banking options. It’s expensive but worth it.

Second, we work with our clients to ensure that they don’t become bad customers for the banks. Banks have written and unwritten rules for chargebacks, refunds, fraud to sale ratios, types of products that can be sold, etc. And they are part of networks and associations which also have written and unwritten rules. It’s a complicated web.

A key play here is to deeply understand both sets of rules and to help our clients to follow them in a profitable way. We do this by being intimately involved in the payments community. We speak and listen at payments conferences. We debate changes to rules. We see what is coming and we proactively work with our clients to adapt.

Of course, there are many smaller reasons that online companies get their funds frozen. These include changes in corporate structure and operational banking, among others. Our plays here involve proactively getting ahead of issues and working to resolve them quickly and pragmatically.

Relationships

The risks here are that your payments partner doesn’t understand you and your online business, and you don’t understand them. We’ve seen these risks pile up on each other. The payments partner makes false assumptions about the online business, and the online business does the same with the payments partner. Tensions rise quickly since the lifeblood of the online business is at stake.

The play here is open and clear communication. Lots of it. This is one of the reasons that we’ve committed to exposing so many of our “plays.” They help online businesses better understand what we are doing and how we are doing it.

It may seem like over-communication at some points. But we don’t feel like you can ever know too much about what is happening with your money and the people who handle it. The reverse is true, too. This is why one of our plays is to host conferences every two or three months for online businesses where we learn what is really happening in the market.

Tools

Tools introduce risks to your business when they are out of date and inefficient. The play we run here is to constantly invest in innovative tools.

Take chargeback tools, for example. The purpose of a chargeback tool is to identify and stop fraud without affecting good customers. Any good customer that is blocked by a fraud tool hurts your business.

For years, we’ve been the leaders in this field. Our fraud experts developed the state of the art chargeback tools. We let in more good customers than any other payments company. Then, five years ago, we began investing heavily into artificial intelligence (AI). Humans just aren’t very good at identifying fraud patterns in large data sets. So we developed new AI based tools.

At first they didn’t work very well so we kept relying on our old tools. Then, in the spring of 2018, after investing millions, we finally got our AI based tools to work. These tools let in many good customers who were being blocked by our (formerly) state of the art tools. In some cases, clients saw increases of 5% of new sales while reducing fraud at the same time.

That’s just one example of the hundreds of tools we have developed and continue to innovate every day. Our vision is to develop tools that use data to help online businesses reach their potential.

Conclusion

Running unnecessary risks is the number one threat to online businesses. We are constantly developing and executing plays to reduce those risks. We want to take potentially major disruptions and turn them into annoyances, then we want to drop those annoyances down to the level of things you don’t even have to think about.

Why? Because you’ve got a online business to run and you’ll never reach your potential if you keep running unnecessary risks.

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