The ability to take credit cards is a decisive factor in determining whether businesses succeed or fail. Customers love the convenience of this payment method and won’t deal with companies who don’t offer an easy way to pay with credit.
This situation is a big problem for any business model or company that the merchant account industry deems as high-risk. High-risk merchants have a much tougher time finding (and maintaining) merchant accounts due to the higher levels of risk.
What Options Do High-Risk Merchants Have?
Fortunately, the high-risk designation will not prevent any company from conducting business. There are individual merchant accounts built specifically for these types of industries. The bad news is, these accounts charge higher processing fees to make up for the greater risk. However, most merchants can build those fees into their pricing models, so the challenge is not difficult to overcome.
Not All High-Risk Merchant Accounts Are the Same
Since merchants in this category carry higher risks, there are many bad deals out there for merchant accounts. Some of the terms are so draconian and the fees so high that the costs are unworkable. Some merchant account providers are looking for a quick buck from these less than desirable accounts, and it shows in their terms. However, other companies specialize in this lucrative industry and treat their customers like partners.
Do You Fit in a High-Risk Category?
Determining if a business is in a high-risk category is a cut and dry proposition. If the industry classification you operate in represents significant risks, you’ll need to apply for a high-risk merchant account as it’s your only viable option.
Chargeback and Fraud Orders Will Be a Problem
Any business with high chargebacks and many incidents of fraud is automatically high-risk. The company decides on this based on the pattern for customers in your industry, including yours. If, over time, those customers show a propensity to place fraudulent orders or to issue chargebacks, the merchant provider will want the extra income and assurance that comes from a high-risk merchant account.
Offshore Business With USA Markets
Offshore businesses that aim at the lucrative U.S. market may run into issues. The problem lies mainly in the banking laws of the country of origin. If they’re not compatible with the merchant account provider’s requirements, the account will be high-risk.
Questionable Legality Will Raise Red Flags
When the legality of selling a product or service is not known, the account will be risky. Some products are legal in certain jurisdictions, but not in others. Any company that operates in a gray area will need to look around for providers who fit their needs. If the company they choose gets squeamish later on and changes their tune, it could disrupt operations.
Poor Personal Credit Causes Alarm
Some, but not all, credit card processors will place people with poor personal credit scores into their higher-risk categories. Their rationale is that the particular credit will impact the business adversely, requiring higher fees to ensure safety. It’s worth shopping around for owners who find themselves in this boat. They may be able to turn up a better deal, which doesn’t place the same emphasis on their credit scores.
Large Ticket Items May Be Problematic
Companies that sell higher ticket items could also run into the high-risk category. B2B companies, who sell extensive contract services might present an issue. Also, companies that occasionally sell something for a higher value than their average ticket could cause a red flag. The merchant provider might want additional information to ensure the company complies with its terms. Significant chargebacks in the historical activity department will require explanation and documentation.
Almost all businesses will be eligible for some credit card processing, even if they start in the riskier category. Don’t forget; they can work their way up to a better status by turning over legitimate revenues without undue incidents from the customers. Primarily, avoiding fraudulent orders and chargebacks is going to be the challenge. Both are a sign of bad service or poor product quality and may cause a provider to shut down an account if the numbers are heading in the wrong direction.
If you own a business that has been deemed high risk or hard to place, we recommend Flow Payments, as they offer transparent rates and fees with exceptional support.
