If you’re an online seller who has been classified as a high-risk merchant, you might be wondering how to best navigate your situation. Unfortunately, many business owners discover that they do not understand exactly what the term, “high-risk merchant account” is until after being categorized as such. Remember, with rare exceptions, a business being labeled as high-risk is not a personal decision.
Payment processing providers take on a degree of risk with each transaction in which a business is involved. The payment processor assumes liability when merchants lack adequate funds to reimburse customers for disputed charges. One way that payment processing providers lower this liability is to make careful decisions about the types of businesses with which they work. Payment processing providers do not offer merchant services to businesses in certain industries if the industry is considered to be too risky or likely to result in an unacceptable number of chargebacks.
A business labeled as high-risk can be any operation that sells goods or services in a niche market. This can be true whether the business sells products online or at brick-and-mortar stores. EMerchantBroker specializes in helping high-risk businesses obtain their desired payment processing services.
Deciding Whether Your Business Is High-Risk
Each high-risk merchant account provider determines its qualifications regarding high-risk. Most providers consider two primary factors; a business’s industry and the business’s financial history including credit details.
Banks also can consider how heavily regulated businesses are at both federal and state levels as well as how heavily saturated the surrounding location is for the corresponding market. Some of the factors that payment processors rely on when classifying a business as high-risk include:
- Businesses with high chargeback rates are routinely categorized as high-risk by high-risk merchant account providers. Businesses that have chargeback ratios greater than 1% are viewed as high-risk. Chargebacks can happen for various reasons ranging from customers who forgot they signed up for recurring services to customers who are billed without consent.
- Various products can lead to businesses experiencing inconsistent profits. Payment processors view profits of this nature as a warning sign and a suggestion of financial uncertainty.
- Customers involved with sensitive customer data routinely suffer various repercussions including being categorized as a high-risk merchant.
- Some types of businesses with high chargeback rates are often viewed as high-risk by merchant account providers.
- Financial institutes sometimes view businesses as high-risk if the operation routinely accepts high-value and low-occurrence transactions.
- Businesses with low credit scores are less likely to be lent money by financial institutions.
Common Examples of HIgh-Risk Merchants
Some examples of the most commonly encountered high-risk merchants include:
- Adult entertainment. Obtaining a high-risk merchant account as a business in the adult entertainment industry can be challenging. You should select a reputable company that has direct relationships with bank sponsors that offers a payment process.
- E-cigarettes and vaping. Vaping and e-cigarettes are frequently categorized as high-risk. Given the increasing stringency involving industry regulations, businesses need to locate a high-risk merchant provider that they can trust. E-cigarettes and vaping are viewed as high-risk in the online merchant atmosphere.
- Firearms. Firearm sellers are often categorized as high-risk despite the company’s experience. Businesses that sell firearms often find it difficult to locate the appropriate merchant processing solution. Credit card providers are often worried about potential regulations addressing firearms.
- Nutraceuticals. Businesses in the nutraceutical industry are routinely identified as high-risk due to high chargeback ratios and continuity billing structures. Most payment service providers view nutraceutical sellers as too high a risk.
- Subscription box services. If a business offers subscription billing services, a business is likely to be placed on the high-risk merchant list. Subscription box services are viewed as high-risk because they often rely on recurring billing methods for payment.
Some of the other commonly encountered high-risk industries include airlines, booking, motor vehicle warranties, credit repair, consulting, CBD, medical marijuana, debt collection, online gaming, pawn shops, vaping, and web design.
Warning Signs When Selecting a High-Risk Merchant Provider
Various merchant account providers focus on helping high-risk businesses. The less reputable of these providers, however, are known to take advantage of businesses in various ways. Some of the biggest warning signs that businesses should be on the lookout for include when deciding on a provider include:
- Predatory behavior. Some so-called high-risk merchant providers have been known to target merchants who are facing challenges. These providers offer very low costs based on contracts with strict terms that businesses often find difficult to escape. Before signing with any service provider, businesses must make sure to perform adequate research, read reviews, and see how the company is rated by various groups including the Better Business Bureau.
- Too stringent reserves. Reserves are one method that payment processors utilize to feel safe about taking on high-risk merchants. If challenges are encountered, the seller’s acquiring bank is insulated from losses by a reserve. Reserves are grouped into three categories: up-front reserves that permit processors to withhold funds from credit card transactions until reserves are satisfied, rolling reserves where providers withhold a portion of daily revenue for a limited duration and return the funds when they become available, and fixed or capped reserves where the acquiring bank withholds funds to a predetermined limit. After the limit is surpassed, the acquiring bank does not withhold funds until the reserve is exhausted.
Costs Associated With High-Risk Merchant Providers
Businesses pursuing high-risk merchant accounts often inquire about what the rates and costs charged by a business are. The biggest challenge faced by high-risk merchants is how to address the costs that a provider charges with card payments. With high-risk merchant account processing, various factors can make issues about high-risk payments even more nuanced. The rates charged by payment providers are influenced by several factors, which include:
- The processor’s pricing model
- The merchant’s risk level
- Total transaction volume
- Payment acceptance methods
High-risk businesses should expect to pay higher rates than traditional businesses.
The Steps Involved In Applying for a High-Risk Merchant Account
Merchants who discover that they have been categorized as high-risk should expect to take the following steps when applying for a high-risk merchant account. These steps include:
- Completing an online or printed application. Many businesses discover that they can complete applications for high-risk merchant accounts in a short amount of time.
- Promptly request quotes. Many providers offer price quotes for services within a day or two. Businesses should then compare these prices to other high-risk merchant providers.
- Choose a provider. After deciding on a high-risk merchant provider, businesses should wait for acceptance. Following acceptance and underwriting, businesses can begin accepting payments.
Advice on Finding a High-Risk Merchant Provider
Multiple high-risk merchant account providers exist. Selecting the best possible account provider is often a nuanced process. Some helpful qualities to look for when selecting a high-risk merchant provider include:
- Experience. Operating a high-risk operation requires adequate experience. While some competitors might offer cheaper services, this can end up impacting a company’s reputation among purchasers. The high-risk merchant provider that you select should have substantial experience helping clients in your industry.
- Cost. Both cancellation and transaction fees are directly associated with standard transactions. Your business might need to determine whether a provider’s contract carries any hidden charges or costs that are not immediately apparent. Your business should select a merchant
- Customer service. High-risk merchant account providers can be located that offer accounts with reasonable associated fees. No advantage or low cost is worth it if a provider does not offer adequate customer service. The best merchant account providers help businesses through every step of the process. You should be able to promptly contact your high-risk merchant provider if your business encounters any obstacles.
- Services. The best providers offer services to help businesses with both online and offline payments. Businesses that cannot find providers that offer both services often end up switching between two operations. This can make it more challenging to maintain sufficient transaction data as well.
- Additional features. All businesses need to offer some unique features to attract businesses. A merchant account provider should be cognizant of a business’s needs. Your high-risk merchant account provider should offer personalized features to your business to best address the various obstacles that you encounter.
- Avoiding fraud. With the growing rate at which cyber crimes occur, locating a high-risk account provider that processes all transactions safely is vital. Securing funds is an essential part of any business’s operation. Before selecting a high-risk merchant account provider, make sure to perform adequate research about providers who have histories free of fraud.
- Compatibility. Your business wants to avoid a system that is incompatible with your existing payment system. Before entering into a contract, businesses should perform compatibility tests to avoid any subsequent conflicts.
- Customer reviews. Businesses should make sure to perform sufficient customer reviews to determine what other customers have to say about a high-risk merchant provider.
Contact a High-Risk Merchant Provider Today
As a business classified as a high-risk merchant, you almost certainly already appreciate the challenges involved with finding a dependable high-risk merchant provider. An increasing number of high-risk merchant providers are simplifying the process for merchants beginning with payments and ending with adequately maintaining transactions by sufficiently addressing chargebacks and security-related issues.