Who could have guessed that when you furnish your home you are most likely dealing with a business in a higher risk industry? Yes indeed – furniture merchants are considered high risk!
But that’s from the viewpoint of credit card payment processing companies. They look at many factors, including the ticket size of a typical sales transactions. If your business sells expensive, high ticket items then you are most likely in the high risk category –
Identifying and eliminating risks that are related to potential loss, is at the heart of the underwriter’s role. They look very carefully at every application for a merchant account. Simply put, if the industry a business operates in is considered a high risk of making a loss for the card processing company, the application will be declined.
This is where specialists in high risk merchant accounts come into their own to help you navigate through this process.
Your business and the risks it threatens from the bank’s point of view
Where’s the risk in processing card payments, you might well ask. Don’t they take a chunk of every transaction as well as charging other fees? How can they possibly lose money?
The answer lies in scenarios where things go wrong. Fraud is the biggest risk because it can mean that the bank or card processor may be left carrying the overall burden and financial hit associated with the transaction if the merchant cannot cover the loss.
In this guide we examine some of the common causes of fraud. We also look at what a business owner should do if the industry it operates in is considered high risk for a merchant account.
Top 60 industries considered high risk merchants for credit card processing services
- Adult industry, entertainment and services
- Advertising services
- Affiliate marketing
- Airline, lodging, travel
- Auto sales
- Auto warranties
- Background checks
- Beauty, skin & hair care
- Business opportunities
- CBD oil
- Coins and collectables (antiques)
- Computer sales
- Credit repair and monitoring
- Dating services
- Debt collection and debt management
- Domain registration
- Drugs and drug products (including prescriptions)
- Events and Tickets
- Fantasy sports
- File sharing
- Firearm sales
- Foreign exchange (Forex)
- Furniture sales
- Government grants
- High ticket coaching
- ISPs and web hosting
- Male enhancement
- Money transfer
- Monthly membership
- Moving services
- Nutritional supplements (nutraceuticals)
- Online auctions
- Pawn shops
- Pet sales and accessories
- Payday loans
- Penny auctions
- Phone unlocking services
- Prepaid phone cards
- Pyramid selling, network marketing, direct sales
- Software and apps
- Software downloads
- Subscription Boxes
- Tech support
- Ticket brokers
- Timeshares and holiday clubs
- Vape / E-Cig
- VPN services
- Web design and SEO services
12 Reasons why your business may be considered high risk for a merchant account
- Operates in an industry that is considered high risk for merchant accounts (see our list above)
- High ratio of chargebacks (e.g. over 2%)
- Big ticket transactions (e.g. over $500)
- High volume of transactions (e.g. over $100k per month)
- Recurring billing facility, such as monthly membership subscription
- Seasonal sales fluctuations
- CNP transactions (Cardholder/Card Not Present) such as online sales
- International sales
- Accepting foreign currency sales
- Operates in a country that has a high risk of fraud, high use of stolen credit cards or poor Internet security
- Card processing history is inadequate or non-existent
- Poor or no credit history
How is fraud perpetrated on high risk merchants and card processors?
It’s a very good idea to familiarize yourself with how crooks work the system. This should be a no-brainer when it comes to defending your business and protecting your high risk merchant account.
Criminals and con men constantly hatch new methods but there are a number of recognized frauds and some red flag warnings that you should watch out for.
Fraudulent chargebacks – the most common fraud of them all, often perpetrated by “ordinary” consumers trying to pull a fast one. Customers attempt to get away without paying for the goods or services they received by disputing the transaction in some form, eventually initiating a chargeback with the card issuer
Stolen credit cards – the method preferred by criminals. If undetected, goods are shipped in good faith by the merchant, and only later is the payment reversed once the fraud has been detected.
- A good high risk card processing company will deploy rigorous fraud detection methods, which are often triggered by scenarios such as these:
- The same IP address used for multiple different credit card transactions
- Multiple purchases right after another using the same credit card
- Multiple purchases from the same address with different credit cards
- Multiple purchases using the same card but different addresses
- Above average high transaction values
- False address details or other inconsistencies
- Unusual shipping addresses, often to foreign countries
- Unusual urgent orders
Why are chargebacks such a hot topic with banks and card processing companies?
To understand why a high ratio of chargebacks can cause your merchant account to be terminated, it’s good to understand the concept.
Under credit card regulations, consumers are protected in a number of ways. One of these is that they may immediately dispute the charge, say, if an order has not been received as described or they feel they have been taken advantage of in some way.
In an ideal world, the customer would deal directly with the merchant. Between them they would reach an amicable and satisfactory resolution to the issue. Instead, some people just initiate a chargeback with the card issuer and the merchant is the last one to know about it.
That means the credit card processing company is obliged to do a review and possibly issue the refund as needed. In the normal course of events, that would be charged to the merchant and the card company would be all square.
The problem is that the merchant may have gone out of business, closed their bank account for example, or for some other reason, the credit card processor is unable to get its money back. Then it’s at a loss.
Also, processing chargebacks is labor intensive. Staff must handle the chargeback and deal with it, then negotiate it with the merchant who will not be happy. It takes time to handle all these kinds of irregularities and time really is money when you have to hire staff to do all that.
When a business is seeing a chargeback ratio in excess of 2% of their transactions, alarm bells should ring. The card processor may decide the risk is too great and pull the plug.
What to do if your business is considered to be in a high risk merchant category
As you can see from our list above of “risky” industries, a large number of totally legitimate and otherwise innocent businesses may be declined by card processing services.
This is no cause for concern because there are a growing number of service providers who specialize in high risk industries. No one provider works across all industries. This is actually a good thing. It means that providers get to thoroughly understand a selected list of industries. They appreciate the hazards of that these businesses face and are happy to deal with them.
The key is to use the services of experts in this field. Companies such as us at SecureGlobalPay have built up a network of acquiring banks and card payment processors who cater for the high risk sector.
It means that we can match your high risk merchant account application with a provider who is very likely to treat it favorably.
Your next step – get a merchant account in an industry that is considered high risk
Start today. Click here to complete our high risk merchant account online application form and we will give you a status update in 4-5 days.
Alternatively, talk with one of our payment processing experts on 1-800-419-1772 who will be happy to answer all your questions and guide you along the right path to the right provider for your business.