How is the Risk Free Trial industry like a game of musical chairs
Who gets a seat in the next round?
It’s been months since the mid-pocalypse in February.
What has the fall out been?
- Thousands of mids closed.
- Tens of millions of dollars of cashflow cut off.
- Tens of millions of dollars frozen in reserves that merchants won’t see for months.
- Hundreds of thousands of customers on subscription plans that cannot bill out.
- Hundreds of advertisers left in a position where the money coming in doesn’t cover the money obligated to networks and others.
- Dozens of networks with growing accounts receivable.
- Hundreds of affiliates with nowhere to send clicks.
Let’s deep dive the effects of this by following the flow of money. We’ll start at the top of the “money pyramid” so to speak.
Processing entities flow money from customers to merchants (aka advertisers, seller, retailer). For the rest of this article merchants and advertisers and sellers and retailers will be used interchangeably.
When those mids close, no deposits continue, but refunds, chargeback fees and other fees come out of the accounts.
What happens if a merchant closes his depository account? He may think to force the processor to pull chargebacks and other fees out of the reserve account instead of the depository account.
What happens then? The processing entity most likely will put them on the Match File.
What’s life like being on the match file? It has a ripple effect of closures for any other entity associated with that SSN, address, corporation, etc. (I.e. If you have a Stripe account AND PayPal account to accept payments, they both get closed). It’s a nightmare for those affected and a big downward spiral.
In the first quarter this year hundreds maybe thousands of merchants were put on the match file and even more mids (what’s a mid? check out my artcile about terminology here) were closed. The best my sources can figure is that the card brands forced the bank to match hundreds of merchants. Or the bank made that decision themselves, we may never know. The isos all across the board stated they did not support that decision and fought against it.
The processing agents come out pretty unscathed in this situation. Sure they lose future opportunity and revenue, but their money is secured in their bank accounts.
Who gets blamed? Fingers get pointed all over the place:
- Card brand blames the bank, the isos, the merchant, the network and the affiliates.
- The bank blames the card brands, the isos, the merchants, the networks and the affiliates.
- The isos blame the card brand, the bank, the merchants, the networks and the affiliates.
- The merchant blames the isos, the bank, the card brand, the networks, the affiliates and customers that don’t even bother to read their terms and conditions.
- The affiliates blame the networks, and the advertiser.
I wanted to share some background form an advertiser so networks and affiliates can see “behind the curtain.” Maybe an affiliate can share his perspective in a comment?
Most of what I’m seeing is the advertiser gets a pretty healthy dose of blame. The sheer amount of cashflow sucked out of the system puts them in a terrible situation. They have to make tough choices and that ends up pissing off their vendors, staff and anyone that is affected. It’s a classic “kill the messenger” scenario.
When disaster strikes, what does the advertiser do? If they lost all their mids, they are pretty much done. Maybe, they can find a legacy rebill solution but usually, those are wrought with crazy fees. Most of those solutions are in violation of card brand rules anyway and could be subject to expensive card brand fines. Regardless, the merchant feels like they have no choice. They want to do something to not get outed as a dead beat, knowing their reputation is their credit report.
If they still have some processing at their disposal but lost some or much, this is usually what happens:
1) Stop or reduce traffic, negotiate lower CPAs (law of supply and demand), reduce payments to conserve cash. That leaves affiliate networks who extended terms that advertisers can’t pay, left holding the balance like a big credit card. Some advertisers can dig out of the hole, while others cannot.
2) Continue Fulfillment and small batches of manufacturing and customer service so the current subscriptions can continue.
I’m also seeing some advertisers pointing blame at networks and affiliates for sending fraudulent traffic after the fact. Hard to say if this is true or not. I don’t know why ANYONE running affiliate traffic isn’t using a fraud service like Kount. I see 3–5% of traffic get denied from those systems which saves a TON of money in chargebacks, cpa fees and other expenses associated with dealing with that true fraud.
How can the advertiser avoid this? Have very transparent terms and conditions. This puts them at a competitive disadvantage to the guy who doesn’t give a shit. A big group of us tried this last year with a number of affiliate networks and it went absolutely nowhere. I got a shit load of egg on my face.
What responsibility does the network have in this mess? Patrolling their network for affiliates pushing fake articles, bogus endorsements. Doing the same to the advertisers who have no terms and conditions on their checkout pages.
What happens then? That probably kills all of the “business as usual” traffic. What happens if they don’t? They get C&D from top celebrities and sued by regulators. Pretty shitty situation for them too.
How does this effect affiliates? I haven’t seen too many regulators sue affiliates directly lately but the aggressive offers are still few and far inbetween. Learn sustainable and sellable white hate sales techniques and build teams.
Coverage of the Canadian Skin Cream Scam highlighted the use of “fake articles, bogus endorsements from respected celebrities like Ellen DeGeneres and Céline Dion and phoney surveys from legitimate companies, to trick people into paying for products and services they don’t want.” It’s super easy for customers to rant and complain now a days and it’s only getting easier. I’m not sure how long the current system can last.
Tons of outside forces against it.
Celebrities hate it: Kristy Brinkly, Dr Oz, Marc Cuban, Barbara Corcoan, Jason Statham, Tim Allen, Ellen, Oprah. They all have HUGE audiences and regularly communicate to them about the scam.
Card brands are attacking it with Operation Choakpoint and stopping the flow of money at the banks. They seem to like the money, maybe the publicity around this is just a play to placate the media and other outlets that got mud on their face?
Regulators hate it, they are suing brands and advertisers big and small that have too many complaints against them with the BBB.
Banks are blacklisting fulfillment companies that have negative reputations on the BBB. They do seem to like the money though.
Facebook hates it, they regularly update their system to ban affiliates and cloaking systems.
Google hates it, they’ve announced new measures they are taking to prevent misleading advertising.
What’s next? Well, no word from the card brands. Maybe no news is good news… Some banks are changing their policies to require the customer have the option to be able to purchase the product as a straight sale as an additional option.
So here’s a couple ideas about how to move forward:
1) Status quo. It continues to aggravate the “outside forces” and the “Catch Me If You Can” game continues. Eventually Carl Hanratty caught Frank Abagnale.
2) Advertisers sell unique and quality products that have good endorsements. Affiliates push traffic with those real endorsements.
Here’s a couple tips, maybe painful ones when your looking at a big accounts receivable balance. Look at overhead, see what cuts can be made. I know many companies trimming staff if they understand that the RFT industry isn’t bouncing back in the next couple months, it may take another 6+ months, years or never recover like it was before. There are just too many outside forces looking at it under a microscope. The customer experience is pretty terrible, and as the internet becomes more and more transparent, the window into the glass house is HUGE.
I’m sure there are many other options out there. If you are doing the same thing over and over and expecting a different result, what COULD you be doing differently?
If you are looking for something different and want to make a change with a group of like-minded individuals, feel free to message me. I have a mastermind of 7 figure+ entrepreneurs where we work on brandable and sellable business models.