There are companies in nearly every industry that rely on subscriptions or other types of recurring payments. These methods work well in terms of retention and convenience, since customers only have to think about making the payment once for their recurring services. Companies that offer recurring payments also have more opportunities to up-sell and boost profits. Even without up-selling, offering recurring payment options generally leads to your business receiving more consistent payments from customers.
The Rise in Subscription-Based Services
Any company offering merchant account options will tell you that there are numerous subscription services everywhere you look. Furthermore, these services seem to only be growing in popularity.
The classic example would be magazines and newspapers; while physical versions of these mediums are declining, digital versions still remain strong. More recently, there are also numerous streaming platforms with subscription models for music, movies, and more, while many major software companies have moved to subscription-based pricing. Some companies even offer subscriptions for food preparation and lifestyle subscription boxes (with products ranging from razors to makeup).
Despite the popularity of subscription services, the recurring billing methods that they rely on are viewed as high-risk payment processing. This means that subscription services must look for high-risk merchant account services, since the typical credit card processor will not want to work with them. Unfortunately, these high-risk payment processing services can be very challenging to find.
What Makes Subscription and Recurring Payment Business Models High-Risk?
At first glance, it may seem odd that recurring payment and subscription business models are considered high-risk merchants, since there are typically not the usual red flags (like legal gray areas or age restrictions) associated with them. Companies that use subscription-based payment methods are instead considered high-risk because they often have higher instances of chargebacks.
The chargebacks are more frequent with these payment models for a number of reasons. For instance, some people forget about making their purchase and do not remember they have recurring payments scheduled, while others forget to cancel on time and request a chargeback to get around their human error. Even more chargebacks can occur when customers want to cancel in ways that go against the company’s refund policy.
To further solidify the high-risk payment processing designation for subscription services, these transactions occur without the company physically seeing the card. Any transactions where the card is not present automatically have increased rates of both chargebacks and fraud.
Additionally, some companies will not be in charge of their own distribution, giving them a lack of control. One perfect example would be a magazine subscription where the magazine hires a third party to deliver the magazines. This lack of control means that the companies cannot readily take care of distribution issues that arise. Without the ability to take quick action, there is greater vulnerability to chargebacks, so the company would be required to have high-risk merchant account services.
Finding a Payment Processor for High-Risk Merchant Accounts is Challenging
When banks label a company as a high-risk merchant, it suddenly becomes incredibly challenging to find a payment processor that will work with them. In fact, many payment processors will automatically turn away anyone in search of high-risk merchant account services without a second thought. This results in payment providers frequently refusing to work with merchant accounts that use recurring payments or subscription models.
The Solution: Find a High-Risk Payment Processor
It's possible to find a high-risk merchant account as a company with a subscription model (otherwise there would not be so many companies using this payment method). To avoid extremely high fees, poor service that's not tailored to your recurring payments, and the hassle of being turned down, look for a company specializing in high-risk payment processing.
A merchant services provider that specializes in working with high-risk industries, including those that use recurring and subscription-based payments, will have an understanding of your company and payment needs.
BankCard Services has experience in working with companies across high-risk industries, and we're familiar with the full functionality of subscription-based companies. With BankCard Services, you can quickly get approved for a high-risk merchant account, so you can focus on running your business instead of worrying about payment processing.
Mickael is an entrepreneur and the Co-founder of Bankcard Services. He is a family man and loves technology, innovation, and soccer.