The first inkling that your sound business plan has risks attached may be when your application for a merchant account is declined. Occasionally, it comes as a great surprise to many business owners to learn that banks and card processing companies consider their business is in any way risky.
The card processing industry and acquiring banks look at the world of commerce from different angles than you and I might. It all comes down to what it costs them to work with your industry and how much risk is associated with processing your transactions.
Why would you need a high risk merchant account?
Despite what you may believe, you discover that your application for a merchant account falls into the high risk category. You are flummoxed. Now you need to understand why.
Reasons why your business is considered high risk for a merchant account
It may help to appreciate the factors that cause your business to be categorized as high risk:
- It’s in a high risk industry – typical examples are adult sites, dating, gambling, firearms, nutraceuticals, CBD and so on.
- Big ticket sales – even a furniture store could fall into the high risk category
- You or your existing business have a poor credit history
- You plan to sell internationally – some countries are high fraud risks
- Your industry suffers from a high ratio of chargebacks
Those are just some of the most common reasons. New industries, such as e-cigarettes and vapes, just don’t have sufficient history to categorize them as low risk.
What underwriters look at when you apply for a high risk merchant account
As well as the industry your business operates in, its financial standing, and possibly your own credit rating also play a significant role in building a picture around your application.
Banks treat merchant accounts just as they would loan applications. Where there is an elevated risk involved, underwriters scrutinize every aspect at greater depth. Their job is to protect the bank from loss-incurring partnerships.
What steps can I take to improve my chances of acceptance?
Probably the single most important thing is to be honest on your application form. There may be a strong temptation to “sweeten the pill”. That could backfire disastrously when the card processor finds out, suspends your account, and places you on the TMF (Terminated Merchant File) list.
Individuals or businesses with poor credit should set about improving their credit scores and rebuilding a better history. That may take time but so does building a business. Start now.
The good news about high risk merchant accounts
Card processing companies and acquiring banks all have different lists of what they consider to be risky industries. They also draft their own unique guidelines and no two are the same.
This is very good news for any business owner who has had a merchant account application declined. It means you should never give up just because one provider dislikes your business.
Always remember that there is a card processor out there for every legal business.
Providers who specialize in high risk businesses have done the math and adjusted their business model to suit. They accept that your business may have more refunds or chargebacks.
While these risks are reflected in higher charges for you, there are really valuable benefits too.
Chargeback ratios are the single biggest killer of merchant accounts. They cost money for banks and card processors. Usually, anything higher than a 2% chargeback ration can see your account terminated.
Not so with a high risk merchant account. Many providers operate a more generous level of chargeback tolerance simply because it goes with the territory of the industry you are in.
Customer support is critical to smooth payments processing. This is especially true for online stores. Good high risk providers know this and understand that your business may need support more often than regular “low risk” enterprises, and staff their support desks accordingly.
What to look for when choosing a high risk merchant account provider
Because it’s hard to get approval for your business, it’s critically important not to become desperate enough to accept the first offer that comes along.
That’s because a long term contract with a truly bad card processing company can damage your business, your cashflow, your profits and maybe even your sanity.
Some unscrupulous providers target business owners just like you who are looking around for a high risk merchant account. They lure unsuspecting merchants with glossy web sites and promises of fast approval. Maybe even cash incentives.
Never forget the old maxims “if it’s too good to be true, it probably is” and “marry in haste, repent at leisure.”
8 features that your high risk merchant account service MUST provide:
- Good customer service – you will need this and want it to be responsive and readily available.
- Contract duration of 1 year maximum if possible, so that you can escape if you have to.
- Reasonable early termination fees – watch for this like a hawk or it may cost you dearly.
- Acceptable limits on chargeback ratios and reasonable costs for each occurrence
- A range of payment processing services, such as recurring billing, physical card swipe terminals and payment gateways with virtual terminals for e-commerce.
- Good analytics and reporting to extract useful insights to help you run your business better.
- Multi-currency capability if you sell to foreign countries.
- A pricing plan that your business margins can comfortably handle.
Where to apply for a high risk merchant account
The first step is to understand that you need to find a specialist high risk provider. That is what we specialize in here at SecureGlobalPay.
It makes sense to start today. Get your business running with card payments. Talk to one of our experts on 1-800-419-1772 or go straight to our high risk merchant online application form.