Load balancing is the fraudulent practice of spreading transactions across multiple merchant accounts to dilute risk, attempting to falsely make fraud, chargeback, and VAMP ratios appear better than they are. The goal of this illicit practice would be to prevent threshold breaches and keep merchant accounts open longer.
Load balancing isn’t a safe or effective risk management strategy because it is an attempt to hide rather than prevent issues. Load balancing will likely lead to penalties from card brands, account termination, and possibly even legal action taken against your business.
AltoPay does not condone nor encourage load balancing. If you arrived at this article because you think load balancing could help your business, we encourage you to rethink your strategy.
There are far better and safer ways to manage fraud and chargebacks. Reach out to the team at AltoPay today to start building an effective, compliant strategy that prevents risk — not hides it.
A deep dive into load balancing
Let’s look at why some merchants might be tempted to try load balancing and the consequences of this strategy. We’ll also review which alternatives would be safer and more efficient.
Load balancing vs. channel segmentation
Load balancing is routing transactions to different merchant accounts for the purpose of diluting risk. For example, one merchant account has a VAMP ratio of 0.7% and the other account has 0.9%. If all that activity was funneled into one account, it would be over the VAMP ratio threshold.
For this reason, load balancing might seem appealing to merchants with high-risk merchant accounts.
If anyone — a friend, colleague, industry member — has suggested you try load balancing, don’t be tempted to follow their advice! Even if you know people who are load balancing, you don’t have to follow their example!
Channel segmentation is a similar process but with a vastly different intention.
Channel segmentation is routing transactions to different merchant accounts based on pre-defined criteria for the purpose of better approval rates, more accurate accounting, improved risk management, and easier data analysis.
What is channel segmentation?
Channel segmentation is the practice of segmenting your transactions by similar characteristics and routing them to distinct merchant accounts.
Each transaction you process has dozens of unique characteristics — like what was purchased, where the customer lives, how the customer paid for the transaction, and much more. You can define which characteristics you want to segment by and then filter qualifying transactions to their respective merchant accounts.
For example, you might divide transactions in one or all of the following ways.
- Card-present or card-not-present
- Digital goods or physical goods
- International sales or local sales
- Recurring purchases or one-time purchases
- First-time or repeat customers
Load balancing consequences
Since load balancing is the act of artificially bolstering your business’s reputation and actively attempting to bypass card brand regulations, the practice can cause significant harm.
- Non-compliance fees from the card brands and your acquirer
- Termination of your merchant accounts
- Addition to the MATCH list
- Inability to obtain new merchant accounts
- Legal action taken by local government agencies
- Business closure
Load balancing alternatives
Rather than try to hide your fraud and chargeback issues, let AltoPay help you resolve them.
Here is what we recommend.
- Activate fraud detection and prevention technologies. Stop unauthorized transactions from being processed.
- Use chargeback prevention solutions. Prevention alerts and RDR can significantly reduce your chargeback and VAMP ratios.
- Analyse your chargeback data. Each chargeback comes with a wealth of information. Use that information to determine why transactions are disputed, solve problems at their source, and stop future disputes from happening.
- Get professional help. Chargeback management can be a challenging task. Work with a team of experts who can guide and advise you on optimising performance. The team at AltoPay would be happy to help.
- Apply for the right merchant accounts. Rather than take whatever account you can get and route transactions to minimise risk, look for an account that is actually a good fit for your business. Work with a merchant account provider — like AltoPay — that understands your industry, region, and sales method.
Want help protecting and maintaining your merchant accounts?
AltoPay can help you build a payment strategy that is compliant and optimised for growth. Reach out today to learn more.
