High-risk businesses have more complex issues to contend with than low-risk businesses. For one thing, high-risk businesses will have great difficulty opening up a traditional merchant account. Most banks and processors will not work with high-risk businesses since they are known for experiencing the highest potential for fraud and chargebacks.
What Characteristics Make A Business High-Risk?
Depending on the bank, payment processor, or payment service provider, each provider will have its own guidelines and standards. These standards are what determine which businesses are considered risky. When a high-risk merchant applies for a merchant account, they will be required to submit an application where the specifics of the business will need to be described.
Typically, the following characteristics seem to be the standard to identify a business as high-risk:
- High sales volumes
- International sales
- Accepting subscription-style payments
- High average transaction sizes
- Highly regulated industries.
- Little to no business experience
- A large number of card-not-present transactions or (CNP)
- New or poor credit scores.
- Past fraud or illegal activity.
What Are The Best Practices For Landing A High-Risk Merchant Account?
Being a high-risk merchant alone, will not qualify you for a high-risk merchant account. Consider taking these critical steps to demonstrate to your future provider that you are capable of having a long-term business partnership with your provider. Here are just a few:
- Analyze your cash levels – Having easy access to cash spells stability. What banks like to see is that you have between 25% to 50% of your monthly card transaction volume in your bank account.
- Be honest – It is critical to be open and transparent, especially in the beginning, during your application process. By hiding information, you could really hurt your business and risk being shut down.
- Have the right documents – Have three to six months of bank statements ready to show during the application process. They should clearly depict where the money has come from and where it was going.
- Talk to your customers – Not all chargebacks are ill-intended. Some could be that customers were really unhappy with the product or service. If that is the case, take the time to reach out to your customers directly and see if the issue can be resolved as soon as possible.
- Be a learner – Always rely on the expertise of your payment processor. They know the ins and outs of the industry and are looking out for the best of your business. Allow them to help you set up your payment process and implement their recommendations.
How Payment Processors Come To A Decision
The way it works is that business owners do not directly apply for a merchant account. Instead, a payment processor must be found first to partner with. The payment processor, in turn, looks for a banking partner where a merchant account can be opened.
In the end, it is the bank’s decision whether or not a business will be approved for a merchant account. They are the ones who write the underwriting policies.
One thing to know is that simply applying for a high-risk merchant account does not guarantee approval. Some businesses may have too many factors of risk, despite the provider specializing in risky industries.
Once a banking partner has been discovered, the merchant account can be set up, and the business can now begin accepting and processing credit card payments,
Find The Best High-Risk Merchant Account Provider For Your Business
High-risk merchant account providers are in the business to help you process your payments seamlessly and securely. So where should you start your search for reputable high-risk merchant account providers?
Start by looking into “established industry channels” such as websites, direct marketing, or trade magazines. Once you have found a few, consider setting up an appointment to meet in person.