Understanding payments in network marketing

When the California Vitamin Company, which had just rebranded as Nutrilite, decided to beef up their marketing strategy in the early 1940s, little did they know they’d be creating a whole new industry.

The company had discovered that distributors who recruited their family and friends as distributors were making significantly larger profits. So, they devised a system in which distributors were paid a commission when other distributors they’d recruited made sales.

Before long, two major Nutrilite players, Jay Van Andel and Rich DeVos, started their own venture using this business model. The company, called Amway, would become so successful it would buy Nutrilite in 1972.

Other companies also followed suit. Avon, Tupperware, Herbalife and many others became household names. And their success turned multi-level marketing into a global phenomenon.

High reward, high risk

Over 70 years later, multi-level marketing is thriving. In 2017, Amway racked up $8.8 billion in revenue. And the industry as a whole made $189 billion globally, with $76 billion in commissions paid to distributors.

Yet, despite its continued success, many banks and issuers still consider multi-level marketing to be high risk, mainly because of the industry’s tendency for chargebacks.

According to an NS8 report, typical eCommerce chargeback rates range between 0.43% and 0.65%. But for many multi-level marketing businesses, chargeback rates are much higher.

Smaller businesses in particular often don’t have the infrastructure and know-how to identify and prevent fraudulent behaviour. As a result, they can quickly find themselves vulnerable to false claims.

At the same time, dissatisfaction with products or deliveries not arriving also drive up chargeback ratios. This is because customers often find it easier to start chargeback procedures with their bank or card issuer, rather than try to argue the point with the company.

The upshot is that it can be surprisingly challenging to open and maintain a merchant account.

The average multi-level marketing business holds a merchant account for less than one year. It’s also fairly common for these merchant accounts to be closed at short notice to avoid racking up too many fines. And, with no way to handle payments efficiently and effectively, many may see their growth stifled or even become unviable.

Finding the right payments partner

With so much at stake, partnering with an experienced payments services provider is key. A payments services provider that understands the industry can help multi-level marketing businesses navigate its challenges. And, more importantly, offer guidance as they grow.

By contrast, while some payment services providers may make themselves look attractive by exploiting card scheme loopholes to offer cheaper payment acceptance rates, the tradeoff is that multi-level marketing businesses may find themselves unable to secure merchant accounts down the road, putting their future in jeopardy.

But what does the right PSP look like?

A wide range of payment methods

To offset the risk of merchant account closures at short notice, multi-level marketing businesses should be able to accept a range of payment methods — not just cards, but also digital wallets and other alternative payment methods, including payment by invoice. The right payment processing partner can offer support and advise on the most cost-effective ways to accept these payment methods.

Robust security and risk management

The right PSP takes security seriously and has a solid track record. They should provide multi-level marketing businesses with specialised tools that help keep payments protected and manage chargebacks effectively, in particular by identifying potentially fraudulent transactions quickly.

A global outlook

Multi-level marketing businesses are increasingly operating across borders. So, the right payments services provider should make it easy to accept a wide range of payment types in different currencies.

Keeping distributors happy

Distributors are the lifeblood of the multi-level marketing business. The right payments services provider should understand this. And, more importantly, they should make the commission payout process as smooth and effortless as possible.

Looking ahead: helping multi-level marketing businesses secure long-term success

Multi-level marketing has come a long way since Nutrilife created the first commission-based revenue model back in the flying forties. But unless businesses tackle the challenges head on, particularly when it comes to chargebacks, their long-term success and, indeed, their very existence could be in doubt.

With over 20 years’ experience in the industry, Paysafe is perfectly placed to help multi-level marketing businesses succeed, whether they’re startups or more established businesses.

We have strong relationships with all major card schemes and a specialised underwriting team. And, we have tools to help manage and minimise chargebacks effectively, pay out commissions seamlessly, and accept cash, card and digital wallet payments in a wide range of currencies.

Talk to us today to find out how we can help your multi-level marketing business grow.