Have you been declined for a merchant account? Are you wondering why on earth your business is considered high risk? Many vendors are astounded to learn that their business has any risk at all associated with it.
Banks approach assessing risk based on what they know and what has happened in the past. That means they have a very different take on your business than perhaps you or I would.
They may even have suspended or terminated your merchant account because of its risk profile.
Risk assessment is based on these main aspects of an application for a merchant account:
- The industry you operate in, meaning the products or services you are selling
- Where your customers are located and what currencies you sell in
- Your own transaction and/or credit history
Below we overview each of these categories and help to pinpoint where your application may have failed the first time around. We also show you how to apply successfully.
What is High Risk Credit Card Processing?
Banks and card processing companies that understand and accept the additional risks associated with certain business types offer special high risk card processing facilities.
This compares with regular providers who deal only with what they consider to be low risk businesses. These providers will not accept applications from a high risk business.
Many businesses that are considered high risk are also extremely profitable when run correctly. Therefore they represent excellent business opportunities for entrepreneurs.
A business that is categorized as being high risk will be unable to obtain a merchant account through normal channels. This is why high risk card processors provide a valuable service.
While high risk payment processors may operate in a similar way to regular payment processors, there are some significant differences.
Merchants need to be aware of the differences in the way that high risk payment processing companies conduct business. These differences reflect the additional financial risks involved:
- Higher transaction fees
- Higher monthly fees where applicable
- Longer funds retention periods to build larger reserves against failures such as fraud
- Stricter terms and conditions
- More stringent up-front checking of applicants before on-boarding
- Greater scrutiny at payment authorization stage (e.g. preventing sale to minors)
On a positive note, chargeback penalties may be lower for high risk business merchant accounts, depending on the situation and circumstances. That’s because chargeback ratios are generally higher than for regular businesses.
What is Considered a High Risk Processing Business?
A business is judged mainly according to the industry it operates in and where its customers are located. High risk industries have a higher cost of doing business for card processors.
These 9 factors may place any business in the high risk category for merchant accounts:
- Industries shown to suffer from high chargeback ratios
- Industries where fraud is more prevalent than others
- Big ticket items with high dollar value transactions
- High volume of transactions because it can generate more chargebacks
- Card Not Present transactions where EMV (chip and pin) becomes ineffective
- Subscription services or products
- New businesses where the owners have little or no trading history
- New industries, such as electronic cigarettes, where not enough is known about them
- International sales in multiple currencies because of the increased risk of fraud
These are the Top 10 high risk businesses for merchant accounts:
- Online casinos / Gambling / Gaming
- Adult services including Dating Websites
- Forex or Bitcoin trading
- Electronic Cigarettes or Vaping Supplies
- Pharmaceuticals / Nutraceuticals / Cannabis
- Membership Subscription products or services
- Travel / Lodging / Hospitality / Event ticket sales
- Multi-Level Marketing / Network Marketing
- Mobile apps & Tech Support services
Each bank or payment processing company will have their own list, which may differ from these.
Why it matters where your customers are located
The lowest risk is selling only within the US/Canada. International sales immediately add risk, especially of fraud and costly chargebacks.
In general, sales to Europe Union countries, Australia, Japan, Singapore and South Korea are considered less risky than others. For example, Indonesia sales are considered a high fraud risk.
The number of currencies in which products or services can be paid with is also a consideration.
To successfully supply to a global market, you may need an International High Risk Merchant Account.
Are you Considered a High Risk Merchant?
As well as looking at the industry in which you operate, payment processing providers assess the business owner’s track record and level of business experience.
This assessment is similar to how finance underwriters examine any application for credit.
Established businesses with a proven history of trading and card payments obviously present less risk than start-ups with no payment processing profile.
If you have previously had a merchant account that was suspended (TMF – Terminated Merchant File) then you are high risk. High chargeback ratios are often the root cause.
Your personal credit history is important. A bad or non-existent record flags a potential risk. Improving your credit score is worth considering if it’s a blocker for getting a merchant account.
What are the High Risk Credit Card Processing Fees?
Payment processors apply higher charges to businesses that represent a greater degree of financial risk. That is no more than you would expect and is a small price to pay for building your business.
Processing fees and conditions vary by provider and usually fall into these groupings:
Transaction charges – These are typically 2% to 3% more than for a regular merchant account but could be much higher depending on the business type.
Service fee – Usually a monthly charge
Reserves – By retaining part of your payments, a card processing company protects itself when anything goes wrong. That includes incidents like fraud and chargebacks.
There are 3 main types of reserves:
Up-front reserve – You agree to allow the payment processor to retain all payments up to a certain level, called the Reserve Balance.
Rolling reserve – The payment processor keeps a percentage of every transaction for a limited time, before releasing it as more payments arrive.
Capped reserve – This operates like a rolling reserve but with a limit on the total retained funds, beyond which no part of any payment will be retained unless the reserve has to be called upon for some reason.
Alert: Some high risk card processing companies may try to lock you into a long contract. They may also have eye-wateringly severe penalties for early termination, or other incidents.
These providers prey on some the desperation of some vendors to obtain a merchant account. Be sure to check the fine print very carefully or even have it reviewed by an attorney who is familiar with commerce.
What is the Best High Risk Credit Card Processing Provider?
There are several factors to take into account to identify which payment service provider is best for you and your business. Fortunately, the number of providers and choices is growing.
The 5 most important features to look for in a high risk payment processing company are:
- Reliability – Regardless of the other factors, you want customers to have a normal and seamless payment experience 24/7. You also want the process to work consistently. That means computer systems with almost 100% uptime.
- Low Cost – You accept that your business is classified as high risk. Charges will be higher than for regular “safe” businesses. That does not mean paying excessively for the privilege. Carefully examine transaction charges, monthly fees and retention periods that impact cashflow.
- Safe Authorizations – You need rigorous fraud detection by the processor and/or bank. Fraud can cost you the loss of goods delivered as well as chargeback penalties. It also puts your merchant account at risk of being terminated if ratios are too high.
- Customer Support – This is especially important when disputes arise or glitches disrupt the smooth flow of payments. Professional, effective support is a critical element to keep your business running. Disruptions damage cashflow and profitability, and leave a bad impression.
- Secure Systems – It’s common sense to want properly encrypted, secure end-to-end transaction processing. This cannot be simply taken for granted. A good high risk card payments processor will be totally transparent about their security measures.
We at SecureGlobalPay meet and exceed all of the above requirements. That is why we are quickly gaining a reputation with both merchants and banks as a trustworthy and reliable provider.
Apply today for a high risk merchant account
Don’t let the lack of a merchant account hold back your growing business. Applying is free and you can expect a status with 3 to 4 days.