What You Need to Know About High Risk Merchant Accounts and Credit Card Processing

As a modern business owner, it is essential, even crucial to have the ability to accept and process credit cards. This ability allows you to conduct business online, to receive credit card payments in your stores and shops, and makes other payment processing options available to you as well, such as:

  • Debit cards
  • Gift cards
  • Loyalty cards
  • Checks

It adds a layer of convenience customers appreciate and helps you keep your business competitive within the local marketplace and on a larger scale. If you’re hoping to expand and/or grow your business, merchant accounts that offer credit card processing are the way to go.

But, it’s important to understand a few key details about the way these merchant account providers view your business—and what this means for your business. Most merchant account service providers are highly risk-averse. They assess businesses based on the risks they represent and may deny their services to your business or label your business as high risk based on a number of criteria.

If they designate you as a “high risk” business, it means they believe your business poses a greater financial risk. This determination is often based largely on the risks certain businesses and industries experience for things like:

  • Fraud
  • Chargebacks—perhaps you’ve had excessive chargebacks in the past or operate in an industry with higher than average chargeback rates
  • Acceptance of recurring payments
  • Bad personal credit
  • Processing multiple currencies
  • Operating in industries widely designated as “high risk”

Of course, you want to know why these things matter to merchant services providers. The bottom line is they often prefer things to go off without any hitches.

It’s not only a lot more paperwork when chargebacks occur, or fraud charges are levied. It also costs credit card processing partners money to deal with these matters. The lower their risks of chargebacks, disputes, etc. taking place, the happier they are to extend you their services at reduced rates and with relaxed requirements.


High Risk Categories

One thing that is important to remember is that not all merchant service providers have the same criteria for listing a business as “high risk.” What may qualify you as high risk with one provider may not with others. However, these are some high risk categories that commonly warrant the designation. If one or more of them applies to you or your business, you may find many credit card processors consider your business high risk and schedule your fees and other requirements accordingly.

  • Offshore businesses operating in the United States or U.S.-based businesses operating internationally
  • Products or services that are of questionable legality, including adult products, drug paraphernalia, etc.
  • Questionable sales and marketing practices (MLM and pyramid marketing, for instance)
  • History of excessive chargebacks
  • High risk of fraud
  • Bad personal credit

With many merchant service providers, their objectives involve minimizing their own risks. They do this by being selective in the merchants they do business with or by assessing higher fees and other requirements for those they deem “acceptable risks.”

High Risk Industries

In addition to the categories mentioned above, businesses in certain industries, may also be listed as high risk merchants with most payment processors. These high risk industries include:

  • Adult Entertainment
  • Air & Water Filtration
  • Airlines
  • Antiques/Collectibles
  • Apparel Sales
  • Auto Transport, Parts & Accessories
  • Business Owners with Bad Credit
  • Beer, Wine & Liquor Sales
  • Cannabidiol/Medical Marijuana
  • Card Not Present
  • Computer Hardware
  • Credit Repair
  • Debt Consolidation
  • Discount Buying Service
  • Document Preparation
  • Downloadable Software
  • eBooks
  • E-Commerce
  • Electronics
  • Firearms & Ammo
  • Foreign Exchange Market
  • Financial Services
  • Furniture
  • Gambling/Gaming
  • Health Clubs/Weight Loss
  • Insurance
  • Jewelry
  • Legal/Personal Injury
  • Magazine Subscriptions
  • Marriage Services
  • Moving Company

The list is by no means exhaustive, but it offers a good idea of the types of businesses most merchant services providers feel represent greater risks and will designate accordingly.


Fees and Rates for High Risk Businesses

If your business falls into a high risk category, it may be no fault of your own. That doesn’t change the fact that you need to move forward with realistic expectations of what is to come for your business. The one overriding reality is that high risk accounts cost more than those that aren’t identified as high risk accounts.

Unfortunately, you’ll generally pay a considerably higher amount for the same services as low risk businesses. Some of the “penalties” you’re required to pay as a high risk merchant include the following:

  • Higher account fees
  • Higher processing fees
  • Lengthier contract requirements (while you can negotiate, many providers require three years to begin with that includes an automatic renewal clauses extending the contract in one-year increments afterward)
  • Early termination fees
  • Fewer pricing options (while many businesses prefer interchange-plus pricing plans for payment processing, high risk merchants may only have the costlier tiered pricing options with some providers)
  • Rolling reserve requirements that limit your available cash flow
  • Transaction limits (some providers limit the number of transactions you can process in a month while others limit the dollar amount of transactions you can process)
  • Increased chargeback fees

It’s not all doom and gloom when it comes to high risk merchant accounts. There are some benefits to keep in mind with these types of accounts, as you can do business with an international audience, something low risk merchants are unable to do. That doesn’t change the fact, though, that you do pay more for the privilege.


Managing Chargebacks

Chargebacks are public enemy number one if you’re attempting to move out of the high risk category with your merchant services provider. One of the most important things you can do is to actively seek ways to reduce the number of chargebacks that occur within your business.

Here’s something you may not know about chargebacks: roughly 86 percent of chargebacks, nearly nine of every 10, are the what is known as “friendly fraud.”

What is “friendly fraud?”

First, it’s best to look at the other two types of fraud that occur when it comes to chargebacks:

  1. Merchant error
  2. Criminal fraud

Merchant errors that lead to chargebacks may include things like poor customer service, failing to respond to customer complaints, failing to issue refunds after returns are made (which occurs in 15 percent of chargeback cases), and failing to properly display terms for returning defective merchandise.

Criminal fraud is something many payment processors are taking active measures to curtail. If you establish policies and participate in fraud prevention for your business, in addition to investing in equipment that uses the latest fraud detection and prevention technologies, you should be able to reduce criminal chargebacks within your business as well.

Of course, that leaves friendly fraud, which is basically an honest mistake. Friendly fraud is when a customer initiates a chargeback out of confusion, forgetfulness, etc. Like when a customer agrees to a subscription service but were unaware of what they were agreeing to and see charges on their statement that they don’t remember signing up for.

These are chargebacks you can prevent by displaying specific return instructions in highly visible spaces on your business website and in your store. In fact, print them out on every receipt so your customers leave with the information they need in hand.

Other things you can do to prevent friendly fraud is to kick your customer service game up a notch or two. Deal with customer complaints and go the extra mile to make sure your customers feel as though their concerns are being heard and that you want to correct the problem rather than leaving them feeling as the only recourse they have is to dispute the charges.


High-Risk Merchant Services Providers

Of course, even if you’re in one of the high risk industries identified above or you’ve been identified as a high-risk merchant for some other reason, you still need a merchant services provider.

Not just any merchant services provider will do, either. You need to take your time, explore your options, and look for a high risk merchant services provider that will best benefit your business by dealing fairly with you. Unfortunately, some payment processors and merchant service providers engage in predatory practices. Investigate the company you’re considering partnering with as thoroughly as they investigate you to determine suitability.

  • Visit their website
  • Look for independent reviews of their services
  • Explore their reputation for dealing with merchants, such as yourself
  • Read the contract—better yet, go over the contract with your attorney to determine its suitability for you and your business

Negotiate, if there’s any wiggle room to do so, for shorter terms, lower fees, and smaller reserve requirements. You may not be able to get all the concessions you seek, but you might be able to work a little extra breathing room into the equation for the sake of your business.

At the end of the day, BankCard Services is here to help businesses like yours grow. BankCard Services can help high risk businesses get approved for merchant accounts when many others cannot. Plus, we don’t just get you approved. We work with you to make sure you stay approved, by matching you with services that are willing to work with you as a high risk business. We have a 98.7 percent approval rate for helping high risk businesses like yours get the merchant services you need.

Whether you’re involved in a high risk industry or have other reasons for being identified as such, we believe we have the right service, the right knowledge, and the right tools to help you grow your business. Contact us today to learn more about the many services we have to offer high risk businesses.

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