As an e-Commerce business, accepting both debit and credit card payments is the lifeblood of modern-day commerce. However, a merchant cannot simply take these payments without the assistance of a payment processor. This payment processor is essentially an intermediary between you, the merchant, the credit card companies, and the banks.
When you begin your research, and subsequently your search for the right payment processor, you will discover that payment processors typically assign businesses into two categories: low-risk and high-risk businesses. Unfortunately, you will also discover that most payment processors are risk-averse and therefore lean more towards catering their services towards low-risk merchants.
This leaves most high-risk merchants out of the game, with even fewer payment processors to choose from. Add to that the higher fees and more stringent contract agreements, and you might find yourself feeling a bit marginalized.
But don’t despair. There are plenty of processors out there that do specialize in serving high-risk merchants. Let’s take a look at what exactly a high-risk merchant account is and how processors make the determination if a business is high risk.
What Makes A Merchant High-Risk?
As you move along the journey of finding your ideal payment processor, you will also find that each payment processor has its own distinct criteria to make the determination on whether or not you are considered high risk. One payment processor might declare you high risk while another will not.
The general criteria that most processors use to place merchants into a high-risk category include the following characteristics:
- Multiple currencies accepted
- Recurring/subscription payments
- Excessive chargebacks
- Either based or sell to high-risk countries
- Monthly sales volume (on average) is well over $20K
What To Anticipate If You Are Labeled High Risk
Due to the higher level of risk that you will be exposing your payment processor too, there will be a price to pay for the privilege of accepting credit and debit card payments within your vertical.
Here are just a few of the most common features to look out for:
- Heavy Fees And Contract Terms – High-risk merchant account providers normally charge higher fees than traditional, low-risk account providers. Their contracts are also pretty restricting. Always read their contracts carefully and thoroughly to ensure you are not ensnared into an abusive agreement.
- Exploitative Specialists – Since most high-risk merchants find themselves in precarious situations, unable to secure a reputable high-risk payment processor for their business, there are fraudsters ready to take advantage of these situations. To avoid these scammers, take the time to research, ask for recommendations, look at reviews, and even better, hire a lawyer to help you discern whether the terms of a contract are fair.
- Revenue-Restricting Reserves – Reserves are a percentage of merchant funds held back by payment processors. They are used to protect themselves from the risk of your business potentially failing. If things were to go south, they will still receive all money that is owed to them.
The Positives
Despite the challenges of going with a high-risk merchant account provider, there are some privileges to be had. First of all, since high-risk merchant providers are well aware of the high-risk space and all that it entails, there are fewer chargeback penalties. Plus, providers are also less likely to close a high-risk merchant account due to excessive chargebacks. However, chargeback management should still be at the forefront of any high-risk business.
High-Risk Merchant Accounts Grant You Peace Of Mind
There is no question that opportunities for growth and income potential abound when high-risk merchants team up with reputable and knowledgeable high-risk payment processors. It simply requires that the merchant approaches this venture with their eyes wide open.