High risk credit card processing is not so simple; however, it is not very difficult either. If you run a business, you must provide your customers with the option of paying you with debit cards and credit cards. In case, you have an e-commerce website, the importance of credit/debit cards is very high for you because it is the only option for you to get paid. Very small businesses can get their payments from a PSP (payment service provider) such as Square or PayPal. However, you will need a full-service merchant account once your business grows to a certain size.
Many merchants wish that credit card processors treated all businesses the same, but it doesn’t happen. Large businesses with high volumes are offered friendly contract terms which include lower processing rates. The credit card processors also treat businesses differently if high financial risk is associated with them. The processors carefully judge a business to determine whether or not it falls in the category of high risk. If your business is declared a high risk business, things get tough for you because many processors will not approve a merchant account for you. Those who approve it are going to charge you very high fees and rates.
It is frustrating for many high risk merchants that merchant service providers market to high risk businesses but do not easily approve a merchant account for a high risk business. In fact, service providers offer them very highs fees and draconian contract terms which leaves them with no profit. Therefore, it is important that new e-commerce merchants get information about factors that label a business as a high risk business. It will help merchants to understand their ability to get a merchant account.
The very first thing to understand is that processors will determine that you fall into one of the high risk business categories. It happens when you apply for a merchant account. A business is categorized either as a high risk business or not a high risk business. There is no category between them. Things get further complicated because every processor has different guidelines for determining the category of your business. Businesses such as drug paraphernalia will always be placed in high risk categories; however, many businesses have a fifty-fifty chance, and it depends on the processor. It is because some merchant service providers have strict guidelines for determining high risk status while others have some relaxed criteria.
A good way to begin is to check the website of the provider you are considering. It is even better if you call them to know if they consider your business as high risk. It will save your precious time because you will not be submitting applications to different providers that are not going to approve you. The way how merchant service providers treat high risk businesses vary to a great level. Providers that offer merchant services at very low prices do not accept high risk businesses at all. It is their way to keep costs low for their clients and reduce exposure to fraud.
There are providers that will allow some high risk businesses, but they will charge significantly higher fees and rates for a merchant account. It is due to the higher risk they are accepting by giving one a merchant account. There is one category of services provider that you should know about: the providers that specialize in high risk businesses. Their rates and fees are higher which makes them not a good deal for non-high risk merchants; however, they offer merchant accounts for high risk businesses that are unable to get merchant accounts from other providers.
The criteria of providers for determining the high risk status of businesses vary from each other. However, there are some factors that are used for determining whether a business falls into the category of high risk.
The factors are:
• High average ticket sales
• Bad personal credit
• Questionable sales and marketing practices
• Services or products of questionable legality
• Offshore businesses operating in USA
• High fraud or chargeback rate
If a business accepts purchases via credit card, and the purchases have unusually high costs then it is considered a high risk business. It is a factor that affects furniture stores and companies that have many B2B transactions normally. Bad personal credit is another factor that no services provider can ignore. If a merchant has a low personal credit rating, then he is most likely to be placed in the category of high risk. Not all processors consider this factor very often.
Some businesses are often thought of as a scam, and their marketing practices and sales are questionable. As the principle of guilt by association is alive and well; therefore, many providers will label such a business as a high risk business. Moreover, there are businesses that offer services or products with questionable legality. The most common examples of such businesses are selling drug paraphernalia and distributing pornography. There many more examples of such businesses that are labeled as high risk.
If a merchant has an offshore business that is operating in the US, then it might be labeled as high risk. It is because there is a high potential for fraud in such as a case, and the banking regulations in the country of business origin also play a key role. The biggest reason for a business to be labeled as high risk is the high fraud or chargeback rate. In case, your e-commerce business has a high rate of fraud or chargebacks, it is most likely to be categorized as a high risk business. The determination is based on the customers’ behavior pattern and not that of the merchant himself.
Merchants should remember that every service provider has different criteria. Therefore, one provider might not approve you for a merchant account but the other one will do it.
There are many types of high risk businesses and following are some of the most common types of them:
• Adult services
• Google, Yahoo or Amazon Stores
• eBay stores
• Fantasy sports websites
• Extended warranty companies
• VoIP services
• Vacation planners
• Tour operators
• Travel agencies
• Vitamin and supplement sales
• Real estate
• Prepaid debit cards
• Pawn shops
• SEO services
• Life coaching
• Social networking sites