Businesses being listed as high risks merchants, for the purpose of payment processing and other merchant services, may feel a little singled out, isolated, or alone. In many cases, the designation isn’t a reflection on the way you conduct business or even you as an individual. In some instances, it is a matter of the industry your business happens to be in.
What Makes a Merchant High Risk?
There is no single formula used across the board to determine if a business should be designated as high risk. Many payment processing organizations and merchant services providers have their own criteria to determine which businesses are high risk merchants and which ones are not, including:
- The location of your business (businesses that operate or have facilities outside the U.S. may be identified as high-risk merchants).
- The location of your customers—again, operating outside the U.S. poses a greater risk for fraud and your business may be penalized as a result.
- How long you’ve been in business. The longer, the better.
- Merchant account history of your business.
- Your personal credit rating.
- History of chargebacks.
- Whether cards are actually presented to your business or not. If you don’t physically see the card, there is a greater risk for fraud.
As you can see, there is no one determining factor. Another important thing that determines the status of some businesses as high risk merchants, though, is the industry the business is in. In fact, this is becoming a growing trend among financial institutions that offer payment processing services.
'High Risk' Industries for Merchant Services
Some businesses are riskier ventures as far as many financial institutions are concerned. This means they offer increased scrutiny in order to protect their interests. While some will designate them as high risk merchants and deny services, others will offer services at a greater cost:
- Increased oversight and scrutiny
- Caps on transactions
- Require cash reserves (some may be prohibitive, and all requirements reduce cash flow for businesses)
- Increased transaction fees
- Higher overall costs
Businesses in the growing industries listed below may face the high risk designation through no fault of their own other than operating within industries that are famous for claims of fraud, chargebacks, and other headaches and hassles for payment processing partners.
And there are countless other industries that many banks and processors automatically qualify as high risk. If you own a business in one of these high-risk industries, you can find relief from some of the higher costs associated with operating as a high risk merchant.
How to Lower Processing Costs
1. Practice better preventative steps when it comes to chargebacks.
Make sure you clearly explain your billing and refund policies. Give customers detailed statements that include your business name, so they know the name of the business on the billing statement. Include phone numbers and/or email addresses so customers can contact you if they have problems. Keep your customers updated on the details of the transaction, especially if there are delays. Offer refunds, when necessary, to prevent chargebacks from taking place.
2. Manage other risk factors that may be holding you back.
It may be possible to overcome risk factors associated with your industry, in time. It is more difficult, though, to overcome industry-specific risk factors if your business is new, has higher than average chargeback occurrences, or your personal credit is unattractive to lenders.
3. Shop around for a better bargain.
While some payment processing partners may launch stiff penalties for high risk merchants, others may not view you as a high risk merchant at all. Shop around to find the best terms, best pricing and fee structure, and transparency in the fee process.
It’s worth taking a little extra time to find a merchant services provider that will act as a partner for your business. It’s not a race, but a marathon. Seek a partner, like BankCard Services that operates as a trusted friend offering transparent billing practices, honest terms, and the widest range of payment processing solutions to meet your business needs. Contact us today to learn more about how we can help your business meet its payment processing needs, even if you are in a high risk industry, on a month-to-month basis without any long-term contracts.
Mickael is an entrepreneur and the Co-founder of Bankcard Services. He is a family man and loves technology, innovation, and soccer.