High-risk merchants have a lot to consider when launching and running their online establishments. The first and most critical component they must tackle is how they will process their credit card payments. Most payment service providers will not offer these services to high-risk businesses.
Once they secure a credible payment service provider, they need to ensure that they offer a frictionless payment journey for their customers. If that is not enough, the high-risk merchant must also comply with a seemingly endless amount of laws and regulations.
We have only scratched the surface on what is required to effectively and legally run a high-risk business. Merchants need to be well-versed in all the complexities involved in running their online venture. Not only will this ensure that they successfully launch their new eCommerce business, but that they will stay in business for many years to come.
Let’s dive into the additional requirements that high-risk businesses must meet in order to run their businesses.
Getting A License
One of the biggest obstacles that new merchants must confront is acquiring a license. The market is typically divided into two classifications: white or grey.
When it comes to white markets, local licenses are usually required. The perks associated with these licenses include a more positive impression from both banks and payment providers, higher approval rates, and lower processing costs. The downside is that the business must also cope with stringent conditions and restrictions.
Local licensing also requires further investments in order to set up shop locally. This can include the hiring of local professional staff. “Regulatory burden” is also typical such as enduring audits and extensive reporting. Depending on the market, licensing can cost up to 30% of “pre-launch expenses”.
Even after a license has been acquired, merchants must be extremely vigilant about the time period and renewal timeframes. If licenses were to expire, the merchant would be responsible for exorbitant costs that could have been largely avoided.
Just keeping up with all the requirements for compliance can be daunting. However, if the merchant were to fall out of compliance, the consequences can be lethal for the business and its reputation.
Grey markets are not much different. They too are fraught with legal perplexities. Some countries lack legal clarity and should be approached with caution. Even after being granted a license, the merchant still needs to tackle the most crucial challenge of all…acquiring a high-risk merchant account.
High-Risk Merchant Accounts: Higher Fees, Higher Risks
It is no mystery that obtaining a high-risk merchant account can be challenging as few acquirers are willing to tackle the risks involved.
For those acquirers that are in the business of taking on high-risk merchants, they do so by passing on the risk to the merchant. This comes in the form of higher fees, and even more for chargebacks.
Acquirers also have the authority to outright freeze or terminate a merchant account, should the chargeback ratio exceed 1% of total transactions. These actions can lead to loss of sales and eventually being blacklisted by other payment processors, leaving the merchant without a way to process their payments.
Knowledge Is Power
Navigating compliance as a high-risk merchant can be challenging, however, tackling this would involve a two-fold approach. The first approach is for the merchant to acquire extensive knowledge of the current laws and regulations for compliance.
The next would be to find a reputable high-risk merchant account provider that is not only well-versed on the current compliance laws and regulations but has adequate systems in place to help you stay in compliance.
With these two methods in place, you can be sure that you can run your high-risk eCommerce business with both confidence and peace of mind.