A high-risk merchant account refers to a payment processing account for enterprises deemed to be of high risk by financial institutions. High-risk businesses are more prone to fraud, refunds, and chargebacks and hence come with the requirement to pay higher fees for merchant services. Additionally, finding reliable high-risk merchant account credit card transactions services can often seem daunting.
You’ll be glad to know that the knowledgeable professionals at SecureGlobalPay have many years of experience in assisting hard-to-place merchants. They can help you restructure and simplify your business model to get you the approval needed to start accepting payments in a timely manner.
When your sales increase, so does the risk of fraud. This is why you must ensure your payment processing system is backed by strong security that keeps fraudsters at bay. This is especially crucial if you’re a high-risk merchant.
Learn More About High-Risk Merchant Account Credit Card Transactions
Payment processing card companies classify some online business industries and models as risky. Some factors can put your business into a high-risk category, but the key reasons can refer to your returns, payment processing history, fraud, refunds, and chargebacks.
To manage such clients, credit card processing companies have come up with a “high-risk” designation. High-risk merchants are typically subject to higher fees, charges, rates, and additional terms and conditions. If your business is considered high risk by credit card processors, here’s how to know and what it means for you:
- High-risk enterprises will be forced to pay higher rates, fees, and additional terms and conditions from credit card processors.
- Poor cash reserves, excessive chargebacks, bad credit, volatile revenue, and industry-wide issues can lead to a high-risk designation.
- Higher fees, rolling reserves, and rates are some of the impacts of a high-risk designation.
- Improving communication with credit card processors and reducing chargebacks can curb risk factors that result in a high-risk designation
What is Credit Card Processing?
Credit card processing can be defined as the way by which a business can accept client payments through credit or debit cards. Typically, doing this involves using both point-of-sale (POS) hardware and software together with the payment networks of debit or credit card processing companies. Credit card processing companies often charge a percentage rate for every sale and a per-transaction fee based on the transaction type.
Most processors offer the option of setting up payment gateways for accepting credit and debit cards online. However, accepting payments without the physical debit or credit card, either via the phone or a gateway comes with an increased rate due to the higher risk. Depending on the risk, some merchants will receive higher fees, rates, and additional terms and conditions compared to others.
What Makes My Business or Industry High Risk?
Every credit card processing service provider has its criteria of what makes an industry or business high risk. However, there are some commonalities as there are some industries with different credit card processing requirements that are probably subject to a high-risk consideration. Some businesses or industries have higher chances of fraud and chargebacks investigations. These business types often have high refund rates when accepting high-risk merchant payments.
Your business could also be classified as high-risk if you sell expensive products or services over $500 or those that have potential significant legal risks. Oftentimes, If you have over $20,000 in monthly sales and your business sells services or products in regions known for high fraud levels, you could also be labeled high-risk. Below are examples of the businesses and industries perceived as high risk by credit card processing companies. These businesses are known to accept high-risk merchant account credit card transactions.
- Credit Repair
- Bail bonding
- Business coaching merchant
- Legal/Law firms
- Calling cards
- Affiliate marketers
- Life Coaching
- Consumer electronics
- Online gaming
- Rare and collectible cars
- Debt collectors
- Adult entertainment
Besides, businesses with a high volume of recurring payments or cyclical sales for subscription-based items can be categorized as high risk because of the potential volatility of revenue.
Whether an industry or a business is deemed a high risk is at the discretion of the credit card processing service provider. This means that, in some instances, predatory credit card payment providers can use the high-risk designation to charge customers additional fees and higher rates. It is therefore essential to understand what goes into the decision to categorize a business as high risk to make sure it is a genuine reason.
What Can I Do if My Business is Categorized as a High-Risk Business?
If they have categorized you as a high-risk business when signing up with a credit card processor, taking steps to curb the perceived risks could help improve the situation.
Communicate your Business’ Refund and Return Policies Clearly and Openly with Clients
Communicating clearly with customers can help avoid transaction problems. Also, providing a clear return and refund policy and ensuring the customer service department is easy to contact and reliable is a great mitigation factor. Strive to keep clients happy by being professional and flexible.
Raise Your Credit Score
There are many ways of raising your credit score to enter into your provider’s good books. Some of these include:
- Build your credit file
- Catch up on your past-due accounts
- Limit how often you open new accounts
- Pay down the revolving account balances
- Avoid missing payments
Set Aside a Liquid Capital Source
Always strive to maintain a significant liquid cash amount on hand. The well-capitalized businesses are in a much better position to handle shortfalls in revenues or losses. Most credit card processing companies will perceive the cash reserves as a mitigating factor. The credit card providers want to make sure you have enough cash or assets to cover any potential losses linked to refunds and chargebacks.
Actively Work to Lower Chargebacks
Working to lower chargebacks is a key way of improving your standing with a credit card processor. Normally, if you lower your chargeback rate to less than 1% of your overall transactions, credit card providers will favorably consider you. Once you are under the 1% mark, you are no longer considered accepting high-risk merchant payments.
You can always reduce chargebacks by confirming that your merchant name is easily recognizable to clients on their card statements. Additionally, offer a clear refund and return policies on all client communications, such as invoices, receipts, and order forms.
Stay away from gimmicks such as “annual subscriptions” or “lifetime” memberships that start after a brief free-trial period.
How to Choose a High-Risk Credit Card Payment Processor
To avoid risk, shop around and carry out your investigation on high-risk credit card processing providers. Focus on the companies that specialize in your niche and once you come up with a list of potential providers, review their terms and policies thoroughly.
Although the fees imposed will comprise the risk chances of your decision, look for other services provided by the processor. For example, does the provider offer solutions to high-risk merchants like mobile payment and POS terminals? What type of payments will the provider accept?
Another factor to keep in mind is the terms and conditions of the contract.
Never enter into a long-term contract that will keep you locked in at a high rate for a long period. Your business requirements will probably change in the long run, and you might be eligible for better rates.