Soarpay with Scott Hawksworth (SMD) | E104
Payment solutions for businesses that no one else is willing to tackle.
Summary:
In this 104th episode of Fintech Impact, Jason Pereira, award-winning financial planner, university lecturer, writer, and host interviews Scott Hawksworth, Sales and Marketing Director at Soar Payments. Soar Payments is a company that focuses on providing payment solutions to higher risk businesses in the United States. Scott Hawksworth explains chargebacks, examples of high-risk businesses that banks tend to have trouble with, and the value that Soar Payments offers to its clients.
Episode Highlights:
● 00:33: – Scott Hawksworth defines Soar Payments.
● 01:11: – Soar Pay was launched in 2015 in Houston, Texas.
● 03:10: – What are examples of higher-risk industries from the standpoint of payment processing companies and banks?
● 06:38: – Scott explains a chargeback and why the threshold is a small number.
● 10:51: – How is Soar Payments solving this problem?
● 12:11: – Soar Payments’ goal is to present merchants in places where they have the best chance of getting approved.
● 14:22: – How do they implement the tech solution into their business?
● 16:16: – How does their pricing to the end-user differ from other options?
● 20:45: – Soar Payment is not a technology company. They’re a company that provides tech to users to fill a gap in the market.
● 22:41: – What would Scott change in his business or his industry?
● 23:48: – What has been the biggest challenge in his business?
● 25:25: – Soar Payments has an underwriting process that every business goes through to get approved.
● 26:11: – What is the most exciting thing Jamie Hale is working on?
3 Key Points
1. Soar Payments focuses on business in the high-risk space that needs payment solutions.
2. High-risk companies from bank perspectives include: credit repair companies, document preparation, online marketing/SEO services, subscription services, the adult industry, E-Cig/vape/smoking accessories, nutraceuticals, moving companies, and transportation services.
3. The bank threshold percentage for low-risk businesses is 1% or less, calculated based on the dollar amount that you’re having charged back.
Tweetable Quotes:
● “We offer merchant services to businesses of all kinds to help them get set up to accept payments, mostly for credit card processing. But we also offer ECheck and ACH options.” – Scott Hawksworth
● “If you have a business and you are having lots and lots of chargebacks, that is a problem for the bank because they are having to give that money back and that doesn’t reflect well on your business itself.” – Scott Hawksworth
● “The merchant comes to us and then we take a look at your business. We look at your documentation and all of that and we have these established relationships so we can pass you along to the best possible option.” – Scott Hawksworth
Resources Mentioned:
● Facebook – Jason Pereira’s Facebook
● LinkedIn – Jason Pereira’s LinkedIn
● FintechImpact.co – Website for Fintech Impact
● Linkedin –Scott Hawksworth
● Soarpay.com – Website for Soar Payments
Full Transcript
Jason Pereira: Hello and welcome to Fintech Impact. I'm your host Jason Pereira. Today's show I have Scott Hawksworth, director of sales and marketing at SoarPay. SoarPay is a company that focuses on providing payment solutions to higher risk businesses in America. With that, here's my interview with Scott. Hello, Scott.
Scott H.: Hey, Jason. How's it going?
Jason Pereira: Very well. We're trying this for a second time, so hope we won't screw it up. Scott Hawksworth, director of sales and marketing for SoarPay. Tell us about SoarPay.
Scott H.: Sure. What we do at SoarPay is very, very simple. We offer merchant services to businesses of all kinds to help them get set up to accept payments, mostly for credit card processing, but we also offer e-check and ACH options. We have unique expertise. Most of the businesses that we do work with are in what's considered high risk or hard to place spaces. They're considered high risk by processing banks.
Jason Pereira: Okay. We're going to get into how much fun that is. Tell me about the history of SoarPay.
Scott H.: Yeah, so SoarPay was launched in 2015 in Houston, Texas. That's where we're headquartered. Basically we started we were like, hey, there are these businesses that have trouble getting processing. They're good businesses, but for various reasons, and we'll dive into all of that, they can't work with... Many banks won't work with them. We sort of saw an opportunity there to really help these businesses and establish relationships with banks that can work with these businesses. Since then, we've expanded. We now offer solutions to mid risk and low risk merchants as well, but really our bread and butter and what we've really specialized in has been those high risk spaces.
Scott H.: It's really just been a matter sort of a step-by-step working on growth, working on servicing new industries and really educating ourselves about the industries that we do serve because, and again we'll talk about this, the rules are constantly changing. What a bank will work with now may not be what it wants to work with a year from now. We're constantly sort of trying to stay up to date on what the requirements are, what industries they're working with, and really just grow our merchant portfolio bit by bit.
Jason Pereira: Yeah. I mean, there's no shortage of industries where the frustration that people experience by simply saying, "I am a business that is doing well trying to give you business and you won't even let me work with you." It is almost like you are living in this bizarre world where you just can't understand why. I don't get this. I have a legitimate, credible business. I know it's risky, but I can explain it to you, but you want to look at me because that checkbox of the industry that I'm in doesn't meet your criteria. I experienced that in my industry to some degree too because oh, look at that. You have no factory equipment? Oh, I can't give you money. What? What world am I living in that you still think everybody's a manufacturer.
Scott H.: Right.
Jason Pereira: Let's talk about examples of industries that are higher risk. Again, let's just take a step back and say high risk from the standpoint of payment processing companies and banks, not necessarily from their underlying operations. Talk to me about what these types of industries are.
Scott H.: Yeah. I want to emphasize that because a lot of folks that come to us, they're surprised to learn that they're high risk. They look at their business, they say, "Hey, I'm processing well. I don't have tons of chargebacks, all of this. Why am I high risk? I can't believe this." That's a really good point. This is from the bank's perspective. I'll give you some examples of the types of industries that would fall under this. We're talking credit repair, document preparation, any kind of online marketing or SEO type services, those can be considered high risk, any subscription services. We're talking magazines, collectibles, things like that. If you're in the adult industry, that's considered high risk.
Jason Pereira: Fair enough.
Scott H.: Yeah. This is a big one for us, and there's a lot of regulation around this. Anything like e-cig, vape, glassware, smoking accessories, all of this, especially if you're trying to sell this online, all considered high risk. Nutraceuticals, that's another big one for us. Any kind of supplements, vitamins, anything where you know you've got that government regulation going on, people are ingesting a product. That can be considered high risk. Then moving companies, that might be surprising to some people, but moving company and transportation, that could be considered high risk.
Scott H.: One of the big things I think to sort of establish here is high risk businesses are defined as those industries that have greater chargeback risks, so if their chargeback ratios are over 1%, or these businesses can also present reputational risk, like adult or firearms, that's one as well. A risk where certain banks are like, "You know what? We don't want to wade into these waters. We don't want to associate with these businesses." Anytime you're lowering that pool of potential banks, you've got high risk.
Jason Pereira: Yeah. Okay. A couple of things to unpack there. The last point you made about reputational risk. I feel like I've been on the opposite end of this equation for a long time, specifically in the ESG investing space, right? We basically have those solutions for clients where that is important to them. More often than not, the screens are alcohol, tobacco, firearms, adult industry also in there for many of them, nuclear, whatever, might be. It used to be simply that it was all about basically not investing in those companies, but now we're starting to go more and more down the value chain of other companies and the servicing of those industries. What percentage of your... I've seen what happened with banks specifically where they've been lobbied to stop dealing with companies that manufacture cluster munitions for example, right?
Scott H.: Right.
Jason Pereira: I believe in that as a cause and I understand how other people can believe in that as a cause. You can't fault them for wanting their shareholder proxies to be voted in the direction of their values. But at the same time, there are companies on the other side of that who have employees, sound businesses, products, whether you agree with them or not, who then start to get boxed out because of that. You're finding ways to... I mean, that's an extreme example, but you're finding ways to deal with that. Now, let's go back to that entire greater than 1% chargeback. Let's explain a chargeback and let's explain why the threshold is such a small number quite honestly.
Scott H.: Yeah. A chargeback is... I'll give an example. You go and you buy something online. Let's say it never gets sent to you or it wasn't what you ordered and maybe you can't hear back from the company. Well, when you go to your credit card statement, you've been charged, whatever, 20 bucks. If you're not getting your refund, what you can do is you can institute a chargeback. You tell your card issuer, you say, "Hey, I didn't approve this charge. This was a fraudulent charge or they didn't give me had requested. Charge it back." What happens there is instantly this is for consumer protection. Credit card holders, you have this chargeback ability. They'll instantly start giving you your money back. They'll say, "Okay, boom, we're going to reverse this charge because you've said that this was a faulty thing."
Scott H.: From there, then it kind of becomes a problem for the merchant because now you have this chargeback and merchants get hit with chargeback fees on top of that. Not only will they lose that $20 that they had charged you, but they won't recoup those fees that were taken out when they originally did the charge and they'll get a chargeback fee on top of that in many cases. That's basically designed to protect the consumers as I mentioned. Then the merchant can either fight this chargeback and try to get it reversed and say, "No, that was legit. No, I did send the person that." That's a whole different conversation, but there it can kind of become a challenge to win those chargebacks. But essentially the way banks look at it is you have a chargeback percentage and the way processors look at it.
Scott H.: If you have a business and you are having lots and lots of chargebacks, that's a problem for the bank because they're having to give that money back and that does not reflect well on your business itself. They have a very, very low threshold. For low risk, it's 1% or less. How that chargeback ratio is calculated, this is something that a lot of people are confused by. Some people think, oh, it's just the number of transactions. If I have 10 transactions and I just get one, then it's one divided by 10. No, actually the way processors look at it is they do it based on the dollar amount that you're having charged back, which really if you think about it makes more sense.
Jason Pereira: Absolutely. Versus total sales, right?
Scott H.: Exactly. Exactly. The way it is is low risk is 1%. then if you get above that 1% chargeback, then you might start to look high risk and low risk banks and processors may shut you down. They may stop wanting to work with you. Even in high risk spaces, it only goes up to about 2%. Really you're getting another percentage point there, but it's not much more than that. These chargeback ratios are something we see a lot of merchants struggling with, but it just kind of is what it is.
Jason Pereira: Yeah. I mean, I totally get it from the bank's perspective. They want to process payments. They don't want to be judged during execution around this sort of stuff, right? It's a typical line of business that maybe they don't price it in the reputational side. It's interesting that it's... Frankly, I think anyone listening to this thing, 1% of total sales. I mean, there's absolutely certain industries where that might be a higher challenge even if we're a totally credible company working completely within the rules, right? A lot of people get boxed out of this sort of thing. I'm looking at your website. I'm seeing some things I just would never have thought about stuff, like seminars and coaching, right? I can understand maybe like a seminar. You're going to pay to go to a seminar you pay. It's a one off purchase.
Jason Pereira: I don't really understand how that doesn't get delivered, right? Some of the other areas like CBD oils, firearms, I get that stuff, right? I definitely see how there's grayer areas of the economy where there would be certain elements that maybe get attracted to it, which make the average of the industry less credible, even if you are the most upright business owner, right?
Scott H.: Absolutely.
Jason Pereira: Let's talk about how you solve this problem. What is it you're doing in in particular that's allowing you to basically service these companies?
Scott H.: Yeah. What we're doing is essentially we have relationships with... We have processing relationships with banks that work with these types of businesses and they're smaller banks. Many of them aren't necessarily your largest banks out there that in many ways can afford to just say, "You know what? We're just going to cut off this whole industry and we're not going to work with that." We have these relationships. The thing is that not all of these banks will work with all of the industries that we have. We sort of keep ourselves nimble in the sense that you were mentioning like, okay, firearms is here, but then okay, someone's doing e-cig or vape here, well, some bank will work with firearms, but they won't work with e-cig. Some will work with glassware, but they won't work with e-cig.
Scott H.: What we do is the merchant comes to us and then we take a look at your business, we look at your documentation and all of that. We have these established relationships, so we can pass you along to the best possible option to give you the best chance of getting approved. Because the fact is, even in high risk spaces, not everybody gets approved. You can get declined. Sort of our goal is what can we do to present this merchant and find the best possible option for them to get approved so they can start processing because they have a solid business, they just need a home.
Jason Pereira: Interesting. Essentially what you're doing is... It really makes sense. You're kind of almost like a reverse outsource. You basically have found a bunch of banks who are interested in expansion into certain areas that they see as not as... No, not the same way others do, right?
Scott H.: Mm-hmm (affirmative).
Jason Pereira: You basically take care of all the implementation, the risk modeling, the understanding of it all, so that you can turn around and then basically match them up. You kind of work almost as a layer for distribution on top of them.
Scott H.: Mm-hmm (affirmative). Absolutely. I mean, I think a great example of this is nutraceuticals and sort of where we kind of can really jump in. Because we know, for example, even in high risk spaces, there are certain ingredients that vitamins and products have that are simply... They're called red line products. If you're trying to sell this supplement and it's got... I mean, I think one of the... It's something like a SARMs, which are like testosterone type, steroid type things. If you've got that, we know, okay, actually no US bank is going to touch this. We can tell you right off the bat, "Hey, sorry, we don't have an option for you." But maybe there's other ingredients that other folks won't work with, but we know that there is a bank that's okay with it. We can kind of be that first line as well.
Scott H.: That's where the banks appreciate it because they don't want to necessarily take all that time to sort through and like, "Oh yeah, this is banned. This is banned. This is banned." We can kind of filter out a lot of the things that are like, no bank is going to touch this.
Jason Pereira: In a lot of ways, for lack of a better analogy, you are a dating service for "higher risk" industries and banks who are willing to deal with certain higher risk industries.
Scott H.: Yeah.
Jason Pereira: Okay. Fair enough. Talk to me about the technology angle. You have a similar approach to another company I interviewed previously where you're not actually the tech provider, you're the kind of marketing distribution company that not only is a dating service, but also provides the payment infrastructure as supplied by other tech companies. Tell me about how you implemented the tech solution into this mix.
Scott H.: Yeah, that's a great question. Our whole philosophy when it comes to tech is what you said. We're not tech folks. What we really want to do is we want to be real neutral. We want to be able to work with everybody. In a lot of these industries, there is unique software that some folks are using. I think credit repair is a great example of this. There's a lot of repair software that people like to use. What we want to do is be able to integrate with as many people as possible, with as many different types of industries and softwares as possible. We have relationships with... I think our biggest one, our payment gateway that we work with is Authorize.Net. That's the biggest one. They integrate with all kinds of software.
Scott H.: That works really, really well for us because we can always say, someone's like, "Oh, I have this online store, can you integrate with it? Connect my payments to this?" More often than not, the answer is absolutely. We also go with these robust providers because then there are API solutions and devs solutions from time to time. We can get creative and things like that, and we can work with their support team and things like that to sort of learn like, okay, how can we get this merchant what they need and kind of put the merchant in contact with them as well. We're always on the lookout for just partnerships for tech. Hey, let the people do in the payment gateways and these underlying tech things that support our industry.
Scott H.: Let them do what they do best and we'll focus on getting these merchants in the door and helping them get approved and just let the tech solutions work themselves out. You know what I mean?
Jason Pereira: Mm-hmm (affirmative). Excellent. Basically thus far, you basically, again dating service, provide technology to implement all this. You're connecting all the pieces together. Tell me about the pricing of this. To the end user... Not the end user, but to the end customer, which is the company that you're servicing here, how does your pricing differ from say if they were able to go straight to a conventional system?
Scott H.: Yeah. Really the pricing difference... For us, a lot of this pricing comes straight from the banks because a lot of folks are surprised when they're in high risk that your fees are going to be a little higher. This is just unfortunately old school capitalism, supply/demand. There are one fewer banks willing to work with these businesses so they can charge a little more. Then two, it's just kind of a risk assessment for them in the sense that, hey, we're working with an industry we know has higher chargeback risks or higher fraud risks or whatever the case may be. We want to protect ourselves and so we're going to have minimum fees and minimum per transaction fees that are just higher. We go with that. We don't add extra charges on top of that. That's kind of one of our things is we don't want to hit people up.
Scott H.: There's other folks in the industry who may charge application fees and things like that. We don't do that. How we sort of approach pricing is look, we're going to try to give you the best possible price we can, but realize in many cases, you're high risk. Kind of going back to credit repair. A lot of folks have smaller businesses and they're just starting and they're kind of taken aback by what your per transaction fees and things like that might be because they're in that mode of, wait, I have this solid business, I should be getting 1% or whatever per transaction. Unfortunately, it's just a little higher and there's only so many banks that are working with it. It's kind of either this or you're not processing credit cards.
Jason Pereira: In fairness. I mean, if we are dealing with an industry that has higher chargeback rates and therefore a greater need for involvement in claims and visualization, it's warranted, right? I mean, this is like insurance pricing to some degree, right? Unfortunately, sir, you smoke and you have had a heart attack and you're 50 pounds overweight. Guess what? You're not a standard preferred risk. It's just the way it is, right? It's unfortunate because it gets in the way of business because this is not sort of the same case. You can have completely great businesses there. But just because of their peers unfortunately, it's a challenge.
Scott H.: Yeah, absolutely. Absolutely. I've had many conversations with folks on the phone talking about this aspect. Typically what we do too is we try to give you the best price we can. I think one other pricing thing I would add that people are surprised by is there's this thing called interchange plus versus discount rate pricing. Interchange is just the pure card issuer fee, so your MasterCard, and then plus you might add a couple of percentage points on top of that or what have you, a couple of basis points. Then the discount rate is just sort of a flat rate that is more often used for online transactions because essentially they're kind of baking in those extra fees in there, those extra percentage points into the discount rate. Sometimes folks, the reality is that interchange plus, that's for retail.
Scott H.: That's how we price retail, meaning card present in person transactions. Well, a lot of folks they're doing online or they're processing these credit cards over the phone. That is a high risk thing. That's higher risk if the card is not present when you are doing a transaction, if the person hasn't sat there and given you their card upfront and you took it and swiped it. You might have higher pricing if you're selling online. You are going to be harder pressed to get that interchange plus pricing and that's just sort of how it works. Sometimes people are a little surprised by that as well because they think, "Well, wait, I know my local delicatessen gets this pricing because I talked to the guy," it's like yeah man, but you're in a different ball game. You're selling-
Jason Pereira: You want that rate? Go be a deli.
Scott H.: Exactly. You're selling bongs online. Come on.
Jason Pereira: Yeah. It is what it is. It's almost like the insurance world thinking overlaid with the banking thinking, which it really is. It's all about risk management. It makes perfect sense. We'll have to talk offline about some of the craziest stories you've heard. I don't want to rat anybody out.
Scott H.: Sure.
Jason Pereira: I mean, again, I think you've found... Somewhere to some of the people I've talked to, you're not a technology company. You're a company that provides technology to users, to user companies, to essentially fill a gap in the market. I've seen others compete based on service. You're competing by going after a largely ignored segment of the market, which is not small. I mean, I can't even imagine how many... That's a really good question for you. Do you have any idea how many different companies in America would fall into this category of higher risk?
Scott H.: That's a great question and I do not. I think whatever the number is, it's higher than one would think and especially because many companies, they don't know they're technically high risk. Sometimes these companies, they can get lower risk processing and they can kind of skate along and then they'll get discovered essentially and shut down by their processor. Actually this is something that I take very seriously because I hate when I get these calls from someone who has a great business and now all of a sudden they cannot accept credit cards. They thought they were fine. No one ever told them they weren't fine and now someone's holding their funds and they've got hundreds of customers waiting in the wings. They come to us desperate. They're saying, "Please help us. We need to be able to process." Many, many of these companies fall into this.
Scott H.: What we try to do is... Basically I say, "I am so sorry and I wish you'd found us as as soon as possible, but you found us now. Hey, let's work with you and let's get you rocking again."
Jason Pereira: The business owner reputational risks and all that where you basically turn around and you're accepting one day and then you're not. The people who basically want to deal with have to start asking the question of what just happened here? Not a good position to be in. I mean, good on you for figuring out an unexploited part of the market, exploit it in a good way in that you're able to turn around and actually help people better grow and scale their businesses. Of course, technology is a leveraging part of that. Before we finish up, there's three questions I ask everybody. The first one is if you had one wish for something you can change in your business or industry as a whole. I'm going to preface this by saying that it shouldn't be that everybody becomes a high risk business.
Scott H.: No.
Jason Pereira: What would it be?
Scott H.: If I had one wish, I would wish that there would be more clarity for folks like us from some of the banks on what the requirements are, and there would just be more communication because I think sometimes something will change down the line and it's kind of disseminated. It's almost like we're surprised sometimes. I don't like when I'm surprised when I have a merchant and I thought we were good. And then I found out that there was something different that wasn't quite what it was and we can't get them approved. I understand, again, this stuff you've got risks. This is complex. But I would be like, man, if there was a little update I could get every morning that just told me exactly, "Hey, some people had a meeting in a board meeting last night and this change is coming down," that would make my life a lot easier.
Jason Pereira: Fair enough. What has been the biggest challenge in scaling the business to where it is today?
Scott H.: Ooh, great question. Really I think the biggest challenge has just been it's competitive just because... We were talking about those fees. A lot of folks in payments, you talk about the Squares and the Stripes, how they've sort of upended a lot of traditional payments industries. They've eaten a lot of the margins that a lot of these payments businesses were feeling nice and fat. We sort of found this high risk space and there's a benefit there because Square doesn't serve a lot of high risk businesses. We're not even competing in that same arena. A lot of businesses are coming out and they're offering great services. I'm not disparaging anybody, but it's just the competition is really great. You have a lot of people wanting to service these merchants. That presents its own challenges as, hey how can I get these merchants to roll with us?
Jason Pereira: It's interesting. I'm of the mindset that when I see places not offer a credit card or start charging for the interchange fee, I get annoyed. Because as a business owner, I'm always thinking about how to better that client experience. It's got to be frustrating for these businesses who... I can't imagine, especially in the online sphere, how much they lose that they can't take credit cards, right?
Scott H.: Oh yeah.
Jason Pereira: The competition is intense. I mean, you're right. The Squares and the Stripes that made everybody think it's just as easy as logging in and putting a little dongle on your phone and you're off to the races, right? For many of us, it is that easy. But for so many more, it most certainly is not.
Scott H.: Yeah. Actually I want to just add to that too. We have an underwriting process that every business goes through in order to get approved, and the underwriting happens on the front end. What's nice about that is if you're approved, that means that you've been signed off on and your business is okay. Well, what Stripe and Square do is they let you go, they'll send you the thing, and they'll let you start processing, and then they'll do their...
Jason Pereira: Until.
Scott H.: Yeah, then they'll look on the back end and be like, "Oh wait, you're your credit repair. We don't work with that. Bye," and then they shut you down.
Jason Pereira: Now your infrastructure is already built. People are used to doing it.
Scott H.: Yeah. Yeah. People come to us and they're like, "Wait, what? It's going to take a a couple of business days? I want to process it in three hours." It's like, yeah, but this is a different ballgame.
Jason Pereira: Yep. Yeah, go be a deli.
Scott H.: Yeah, exactly.
Jason Pereira: What excites you the most about what it is you're working on and what keeps you going every day and basically motivated to keep at it?
Scott H.: Yeah. What excites me the most is I love payments. I have my own payments podcast. I love this intersection of technology and the solid financials of those residuals and things like that that allows you to both be creative and sort of expand and all that good stuff and kind of scratches that entrepreneurial itch I have, but then also has this underlying like solid financial base when you are doing it right and when you're successful and you're building your portfolio. I really, really enjoy that and it motivates me. What gets me up in the morning is actually that competition I mentioned because I think we do a fantastic job. We take service very seriously. I think we also try to educate folks on these industries and really be a source for them beyond just, hey, we're marketing at you.
Scott H.: That motivates me to help people and do it hopefully better than our competitors are.
Jason Pereira: Fantastic. Scott, thank you so much for your time and hope you guys continue to help more and more businesses. I kind of hate to say this, but part of me wants to wish you that more companies become high risks and they give you more options, but I don't hope that.
Scott H.: Yeah, yeah, no worries.
Jason Pereira: I also at the same time don't help people become low risk because then you're in trouble too. But nevertheless, best of luck helping those who can't find help elsewhere.
Scott H.: Thanks so much, Jason.
Jason Pereira: Thank you. That was my interview with Scott Hawksworth of SoarPay. Hope you found that interesting. If you're a higher risk business, I suggest you look them up immediately. As always, this has been Fintech Impact and I am your host Jason Pereira. If you enjoyed this podcast, please leave a review on Apple Podcasts or wherever it is you get your podcasts. Take care.
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