If you have any kind of business where you sell goods and services to a consumer, in order for you to remain above water, you must accept plastic – whether it is credit cards, debit cards, or both. This is especially true if you are a high risk merchant and need a high risk merchant account.
In the U.S. credit has been around since the founding of the colonies. Farmers would purchase seed and other agricultural products until harvest at which time they would pay what they owed. A bad harvest meant lean times for everyone, including the store owners. It wasn’t until the 1960’s that larger community banks began issuing and processing their own branded credit cards. They were given to only those with stellar credit as an enticement to remain with the bank. At a 1.5% interest rate, the banks rarely made profits on their cards.
Then the major retailers saw an opportunity for larger average tickets and began issuing their own branded cards. Once upon a time it was prestigious to have a Sears’s card because it was so hard to get approved. The card associations came to be and we were offered different brands of Visa’s, MasterCard’s and then single issuers like American Express and others. The world was full of plastic and it was – and is –used by millions of Americans.
There was a time in our country that the economic structure encouraged purchasing only what was needed. There is a big difference between needs and wants. Purchases of wants were made by the wealthy. With the advance of credit cards, those who wanted an item but did not actually need it could buy it ‘on time.’ They could enjoy it in real time while paying for it over months and years. Then there were those that actually needed a product or service and did not have the immediate cash so they depended on their credit cards. They were not living above their means, but used credit as a means to an end.
By the late 1980’s credit had gotten out of hand. Everyone was in debit – it was the American way of life. If someone had always paid cash for their purchases they could not be approved for a mortgage. They had no credit. Having credit is a two-way street. Those with a great deal of ‘open-to-buy’ can be conceived as a high risk. Those who max out their cards are considered high risk. It is a conundrum.
Here you are trying to open a merchant account for your new business and you have been told you need a high risk merchant account. This is not because you have too much open credit or that your credit cards are maxed out. It means that you have chosen an industry that is laden with a high level of chargebacks. Credit card associations dislike chargebacks. At the very least they feel that it is a sign of a shady operation. You are selling goods or services for which a high number of customers say your product was misrepresented.
A high risk merchant account expert has ways and means available to minimize your chargebacks. This doesn’t change your rating, but it may save up to 30% of your annual chargeback fees which can be quite staggering. You must keep your chargebacks under 3% in order to stay below radar.