Credit card payments are convenient for buyers, but they’re equally advantageous for merchants. Credit and debit cards make the payment process fast and secure and encourage shoppers to spend more.
A study by two MIT professors showed that shoppers who were asked to pay by credit card were willing to pay more than twice as much on average as those who were told that they would have to pay by cash. Global cashless transactions are projected to grow at 18% from 2020 to 2025 and exceed the one and a half trillion mark in sales volume.
But at the same time, there is a risk involved in card transactions for certain products or services. And it’s the payment processing company that picks up said risk.
This article discusses why some types of businesses may be considered high-risk merchants and how to find a payment processor if you need to start a high-risk merchant account.
What is a High-Risk Merchant Account?
When payment processors review your merchant account application, they may categorize you as a high-risk merchant. This means that, according to the payments company, your business transactions carry an inherent risk of high chargebacks, a high volume of returns, or fraudulent transactions.
A payment dispute arises if a cardholder doesn’t recognize a particular transaction and asks the card-issuing company to cancel the transaction. Known as a chargeback, this is a practice to protect the cardholder from fraudulent transactions. But if chargebacks become more frequent or are applied in error or without due reason, they can become a burden for the merchant.
One of the most important implications of being a high-risk merchant is that you may have to cough up higher credit card processing fees or compensate in other ways for the risk that a credit card processor picks up with your account.
In a way, chargebacks are inevitable in the card processing industry. But payment processors must also work to protect merchants from unfair chargebacks.
Von Payments offers a chargeback management service that helps you cut your chargeback ratio by as much as 40% by addressing potential disputes before they turn into chargebacks.
Reasons a Merchant Might be Considered High-risk
There are various reasons a business owner may be labeled as a high-risk merchant—let’s look at some of them.
- You’re a new business, have little history of card transactions, or have new or bad credit score. The payment processing company may be uncertain about how much business volume you will generate and whether you will be able to maintain a low chargeback rate.
- You are in an industry that is highly regulated or inherently prone to a high risk of fraudulent transactions.
- You sell certain products or services that have historically suffered from high chargebacks.
- You sell travel-related services or ticketing for airlines or cruises.
- You have a business that’s listed on the Member Alert to Control High-Risk Merchants, or MATCH list.
No single regulatory body decides if a particular category or type of product or service is risky. Instead, every payment processing company, bank, or financial institution has its criteria to evaluate a business as a high-risk merchant.
Traditional processors often turn back high-risk merchants, while other companies—such as Von Payments—specialize in payment processing for high-risk industries.
Types of High-risk Businesses
There are a variety of businesses and industries that fall into the high-risk category. Here are some examples –
- Adult products or services
- Online gambling or online dating services
- Substances such as e-cigarettes, CBD, or vape products
- Supplements and nutraceuticals
- Travel companies and ticketing services for airlines, cruises, etc.
- e-Commerce, furniture, and electronic stores
- Multilevel marketing (MLM)
- Subscription services, SaaS products, and companies with recurring payment methods
- Pawn shops
- Mail-order transactions
High-Risk Merchants vs Low-Risk Merchants
There some key differences in how payment processors treat high-risk and low-risk merchants to think about before diving into a potentially high-risk industry –
- Higher payment processing fees: The payment processing company charges a processing fee for each transaction over and above the interchange rate. A higher fee is usually applied to high-risk accounts, which may differ from one processor to another.
- Lengthier application process: Most payment companies will review and approve merchant account applications for low-risk, small businesses within hours. But for higher risk categories, businesses are usually asked to provide more details, such as bank statements and previous transaction records, and a personal credit check may also be initiated. High-risk merchants also require a more extensive underwriting process before they get approval.
- Higher chargeback fees: Every chargeback invites a penalty fee over and above the refund of the original transacted amount. High-risk accounts are generally charged higher chargeback fees to mitigate the risks that the payment processor picks up with a high-risk account.
- Cash reserve requirements: Merchant service providers may hold some amount from the revenue earned by the merchant as a rolling reserve in the case of high-risk merchant accounts.
- Volume caps: High-risk merchants may not be allowed transactions beyond a set or limited amount every month.
- Additional technical requirements: The payment processor is free to add other thresholds to a high-risk merchant account contract. They may ask the merchant to put in place tools to detect and avoid violations that could lead to chargebacks or refunds. For example, if you sell age-restricted products, you may have to use a tool to detect and prevent underage customers from placing orders.
What To Do If You Need High-Risk Merchant Account Services
Here’s some helpful advice from our payments experts to secure your merchant account—even if you’re categorized as a high-risk merchant.
- Be honest during the application process. Give the payment service company all the information they ask for and be transparent about your past transaction records and financial details.
- Review cash levels in your bank account. Payment companies like financial stability—if you demonstrate that you hold a healthy cash balance, you are more likely to receive approval quickly.
- Be prepared with all documentation. Payment companies may ask for back-dated bank statements and tax filing papers for high-risk credit card processing.
- Assess which variables you have control over and try to take steps to mitigate risks. For example, you may try to improve a poor credit score or take measures to prevent chargebacks.
- Communicate to customers upfront to prevent chargebacks and refunds. Check that your shipping and returns policies are stated clearly and are easily found on your website. Give customers an easy way to reach out to customer support so complaints can be resolved without refunds or chargebacks.
- Be ready to learn from your processing company’s experts and follow their recommendations to set up a clean and clear payment process.
Payment companies that offer high-risk accounts work on custom pricing and not standard transaction rates, so it’s a good idea to set up a consultation with a company representative.
How Can High-Risk Merchant Accounts Find Payment Processors?
Finding a high-risk merchant account provider can be tricky. Here are some tips for finding the best one for you:
- Search for a high-risk payment processor with significant experience in working with businesses in your industry or sector.
- Look out for processors featured in trade magazines or industry conferences and events.
- Find out details about the processing company’s policies—such as how much reserve they require or when you can access your funds.
- Ensure you review the contract with the payment company to check if the terms of payment change at any time during the contract.
Find Your Answer With Von Payments
Von Payments can offer you a processing solution to your high-risk merchant account, no matter the industry you work in or the type of products and services you sell.
We deliver secure and trusted transactions with every payment solution for every customer.
Our expertise in chargeback management is what your business needs to reduce your chargeback ratio, ensuring the health and longevity of your merchant account.
Take advantage of our complete suite of fraud management tools, virtual terminals, payment gateway integrations, point-of-sale systems and phone-paired mobile card readers and set up a PCI-compliant payments system with Von Payments.