How Can I Use PayPal as a High-Risk Merchant?
Remember the good old days, when all you needed to take payments was a cash register and a point-of-sale credit card machine?
It seems so long ago, doesn’t it?
These days, it seems as if the amount of payment methods is multiplying by the day, with credit cards, crypto, eCommerce and more exploding in terms of their overall availability. This creates a heavy burden on merchants: After all, you want to make sure that you can accept payments in a method that is convenient for your customers to pay. At the same time, every new method of payment means that you have to do more research, spend more time setting up accounts, and do even more legwork to make the payment process as simple and easy as possible.
PayPal is one of the most popular ways of accepting a credit card or payment over the Internet and has become an Internet standard for many websites. While many competitors have emerged, PayPal is still a market leader, and if you do business online, there is no question about whether you should have a PayPal account.
However, that isn’t to say that there aren’t real challenges in using PayPal for some merchants. Indeed, using PayPal in some circumstances can be particularly problematic. For example, if you’re a high-risk business, you may lose the ability to use any of PayPal’s services. Fortunately, thanks to high-quality third-party vendors, there are many ways that you can set up a high-risk payment gateway that can ensure you’re able to use PayPal and minimize your own costs.
What is a high-risk merchant account?
A high-risk merchant account is a merchant account that payment processors have classified as high-risk. This means that your line of business leaves you uniquely susceptible to fraud or chargebacks. Chargebacks are deadly for a business, as they force you to refund sales. When this happens, your processor isn’t only forced to do extra work, but they also lose the profit they may have made on the sale. This is expensive for all parties involved.
Being classified as a high-risk merchant by any payment processor is no small matter. It can lead to higher set-up fees and greater fees on all of your credit card or bank transactions. In some cases, a payment processor may refuse to conduct transactions with your business altogether, potentially making it impossible for your business to survive. Thankfully, there are many payment solutions for you to still conduct business, but they will require extra research on your part.
A business is only classified as high-risk if they meet multiple factors that force them into this expensive categorization. These include:
- Certain product lines: These include vendors that sell adult products, weapons, or products that are used with drug consumption. This also occurs for businesses where there is a higher-than-average level of refunds, such as subscription services or charter airlines.
- Foreign currency: Businesses that do business with foreign countries, in a foreign currency, or use an offshore merchant account are more likely than others to earn a high-risk classification.
- Higher risk of fraud: This is particularly the case if you work in an industry that never actually sees a physical credit card (AKA: “Card Not Present“). This increases the chance of a purchase being completed with fraudulent authorization.
- Credit history: You’re more likely to be classified as high-risk if you or your business has a limited credit history… or bad credit in general
What is a PayPal high-risk merchant account?
A PayPal high-risk merchant account is exactly what it sounds like: It’s a high-risk account that allows vendors to conduct business on PayPal. The challenge is that using PayPal as a high-risk merchant can be difficult, and PayPal isn’t notorious for ejecting users or cutting off access of certain businesses to its services.
For example, PayPal doesn’t allow certain services, such as adult services, to participate in its marketplace. Other high-risk areas, like CBD companies, have also reported difficulties when it comes to using PayPal. PayPal also isn’t shy about removing vendors for meeting any number of high-risk categories.
There are additional problems with a PayPal high-risk account. For example, there have been instances where PayPal has abruptly dropped a vendor that it had previously classified as high-risk. This occurs when PayPal receives a complaint against a vendor, identifies illegalities, or has objections to the content that a vendor is selling. There is an appeals process, but it can be confusing, time-consuming, and expensive. It’s also sometimes difficult to navigate. PayPal is more likely to abruptly drop a high-risk vendor than a regular one, as the standards for dropping a regular account are much higher.
Setting up a PayPal account that is high-risk also requires more work on your part. You’ll have to prove that your product doesn’t violate PayPal’s high-risk policies by submitting additional information and paperwork. PayPal’s terms of service are somewhat vague, and this gives PayPal the maximum control over what sort of products can use their network. This can also add to the confusion for individual’s who are seeking to use PayPal, as they may inadvertently fall into a high-risk category without even realizing it.
All of this makes it extremely difficult to set up a high-risk PayPal merchant account on your own. This drives home the notion that you should be working with a third-party vendor that can help you manage your high-risk PayPal account.
Doing so will ensure you’re working with an expert in the field who has a history of managing high-risk merchant accounts on PayPal.
How can I establish a PayPal high-risk merchant account?
PayPal does allow for the creation of high-risk accounts, but some context is necessary here. As noted above, PayPal will limit or disallow the sales of certain high-risk accounts. They have also removed merchants from their platform, sometimes without notice. This is usually because there are too many instances of fraud or chargebacks.
PayPal does have certain services that can help protect you from chargebacks, like chargeback protection, but these services obviously cost a lot of money. Furthermore, you’ll get charged $20 for every chargeback, and that is on top of what a bank will charge you. This means that one chargeback could mean a massive hit to your wallet and expensive processing costs.
Establishing a high-risk merchant account through PayPal isn’t tremendously difficult. You simply go through the same process to create a business account as any other vendor and select options that give you protection against chargebacks, fraud, and more. You also have the option of working directly with PayPal to find the necessary products and services that fit your high-risk business model.
Alternatively, you could work with a third-party vendor that has a history of working with payment processors like PayPal. These vendors could give you a better idea of the products and services that you and your business might need and would be able to leverage their experience and connections to ensure that your business needs are adequately handled.
What are the risks of a PayPal high-risk merchant account?
There are many risks that come with using PayPal as a high-risk merchant account. These include:
- Losing your account access entirely. PayPal is a massive organization with millions of accounts, and it has computer algorithms that detect fraud and protect the company from a business loss. If one of these algorithms detects fraud, you may find your account frozen, potentially cutting your business off. This can happen to any high-risk account.
- Chargeback fees. As noted above, every chargeback you incur will result in you being charged. This can make the process of using PayPal even more expensive. This is standard for many merchants, but it can absolutely affect your bottom line.
- Purchasing services that you don’t need. PayPal offers many a la carte service options, including chargeback protection, fraud protection, seller protection, and more. It also offers varying levels of customer service, multiple payment collection methods, and more. Some of these services may be necessary for your business, while others are simply a waste of money. The challenge, for you, is determining what you need and what is simply a money sink. This can be extremely difficult if you’re new to a business and unsure of what services are absolutely necessary.
- Added fees. If you’re looking to set up a high-risk PayPal merchant account, you may not be able to work directly with PayPal and may have to work through a third-party vendor. This can be more expensive, but it’s likely necessary for anyone who wants to do business with PayPal and is in your industry. Furthermore, these third-party vendors come with a variety of benefits that may help you save money.
Why would I want to establish a PayPal high-risk merchant account?
All of this may make establishing a PayPal high-risk account sound expensive and not worth the hassle. Nothing could be further from the truth. Despite the challenges presented by the creation of a PayPal high-risk account, it’s still necessary for any online business.
First, PayPal is much more than an eCommerce website and has evolved into a merchant conglomerate that is capable of doing so much more than simply processing payments that are taken online. Even high-risk merchants can take advantage of PayPal’s array of payment options, which includes point of sales devices that automatically integrate with your accounting software and inventory management systems.
PayPal also operates on multiple levels: It can withdraw balances from PayPal accounts, or it can process any major credit card. This provides customers and businesses alike with a degree of flexibility, as it gives them the opportunity to use the service without even needing a credit card.
High-risk merchant accounts aren’t just something you’ll pay extra money for; they also come with a variety of benefits. PayPal will offer certain protections that may help save you money, particularly if you’re in an industry that needs things like fraud and chargeback protection. These services alone can be invaluable and are not offered everywhere.
PayPal’s fraud management system is particularly robust. Merchants can manage it to suit their own needs. You’ll help fraud filters identify potential fraudulent parameters and decide what to do when PayPal’s algorithm detects a potentially fraudulent transaction. If you work in an industry that has a high risk of fraud, this customizable system can be a godsend and help save you money and fees. You can also generate reports from this risk management service, enabling you to figure out how to better manage your risk profile.
Many merchant account providers have years of experience and have worked with dozens of high-risk businesses, including ones within your own industry. Their expertise isn’t going to replace yours, but it may be able to help you identify ways of navigating PayPal’s merchant account services and finding the best products to work for you. Remember, the goal of a merchant account provider is to help you improve your business by better understanding your needs and helping you identify solutions when it comes to accessing outside financial tools. By working together, you and a merchant account provider can determine what services you may need, which ones you don’t, and how to make the most money while accessing these financial services.
As you unquestionably know, setting up a PayPal isn’t a matter of copying a few lines of code onto your website. Doing it right involves a lot of legwork and may also involve negotiating rates directly with PayPal, selecting the right services, setting up POS equipment, and more. An outside merchant account provider can empower you by helping you understand these services.
There are vendors who can help you navigate this process. These vendors understand that their goal isn’t to replace your business skill and experience but to supplement it by enabling you to make better business decisions. If you’re interested in learning more, reach out today to Bankcard. At Bankcard, our goal is to help you set up and manage Paypal’s high-risk merchant account process so your business can continue to thrive and grow.