Experts are predicting global eCommerce sales with reach $4.5 trillion in 2021. The majority of Millennials prefer online shopping, and most Internet users buy online. If your business isn’t online yet, you might be thinking about adding an online store.
eCommerce is a great way to reach more customers and grow your business. It can also introduce new problems into your payment processing. This is usually true if you’re assessed as a high risk merchant.
Even if your business isn’t high risk, you might want to think about a high risk merchant account. These accounts provide advantages such as more flexibility.
This guide will help you assess your needs and determine what kind of merchant account is right for you.
Who is a High Risk Merchant?
Before you decide a high risk merchant account is right for your business, you’ll want to know if you’re high risk.
There are a few factors that determine if a business is high or low risk. If your business is brand new and has no history of credit card processing, you might be labeled high risk. Most payment processors also consider new industries riskier than established ones.
Businesses with a history are sometimes considered risky too. If you or a business partner have a poor financial history, it could affect your rating. Other risk factors are canceled agreements and placement on the TMF or MATCH lists.
Some established industries are riskier than others. It might surprise you to know the travel industry and most financial services are high risk.
There are quite a few industries considered high risk. A sample list includes:
- gambling, like fantasy sports and online casinos
- adult industries, like escort services
- financial services, such as Bitcoin mining and debt collection
- fortune-telling and horoscope services
- hostels and hotels
How Payment Processors Assess Risk
Why do payment processing providers consider your business high risk? It has to do with how they think about risk.
One of the biggest risk factors is the chance of fraud and chargebacks. This is more common with some kinds of products and in certain industries.
For example, the travel industry often faces cancellations. Maybe bad weather canceled a flight, and the airline has to offer refunds to customers. A customer might cancel a hotel booking, resulting in a chargeback to the hotel.
Any product purchased now but delivered in the future is a risk. Businesses that use automated recurrent billing are also considered riskier. Even annual memberships are usually thought of as high risk.
What Are Chargebacks?
Chargebacks are one of the most important factors in figuring out a business’s risk.
Chargebacks happen when customers argue about charges on their credit cards. The credit card company reverses the charge. The money is then withdrawn from your merchant account.
These chargeback transactions affect your sales, and no business wants them to happen. They also affect your payment processor. Some processors charge higher fees when there are too many chargebacks.
Who Can You Work with for Payment Processing?
High risk merchants sometimes have trouble finding payment processing. Some payment providers don’t accept high risk merchants. Others do, but they won’t sign you on a traditional merchant agreement.
High risk credit card processing does exist. You may be able to work with your bank, or you may need to find another partner. Do some research and find the best high risk merchant account for your business.
When you apply for this type of account, you might be asked for:
- extra financial information
- additional background information for the business
- a reserve on the card
- a higher fee
Keep in mind the lowest-priced account may not always be the best choice. A great provider does so much more than offer a low price.
How to Determine Your Risk
It’s the million-dollar question. Are you a high risk merchant? The answer might depend on your payment processor.
There are a few factors you can consider. Your monthly sales volume needs to be under a certain amount. Your average sale will also need to be quite low, often well under $100.
High risk merchants often operate overseas. They might do business outside of low risk regions, such as Canada, the US, and Australia. These merchants often accept more than one currency.
The risk of fraud and chargebacks is also higher for some kinds of transactions. Merchants who accept card-not-present transactions have a higher risk. This often means eCommerce businesses need high risk credit card payment processing.
If you handle transactions online or accept payment over the phone, you might be a high risk merchant.
Do You Need a High Risk Merchant Account?
If your business is high risk, you’ll need an account designed to handle the extra risk factors. If your business isn’t high risk, you still might want to think about a high risk merchant account.
It’s true high risk credit card processing usually comes with higher fees. These accounts also provide more flexibility to businesses in many industries. The higher fee is the price you pay for the opportunity.
A great example is businesses in a growth phase. If you’re growing, you might expect your sales volume to increase. eCommerce also encourages customers to buy more, meaning you have higher average orders.
You can make the most of other eCommerce benefits with a high risk merchant account. For example, eCommerce allows you to sell to customers all around the world. An account designed for high risk merchants is a better choice for your business.
Selecting a merchant account for high risk businesses is often a wise move. It’s better than having your merchant agreement canceled because of chargebacks.
Start Your Application
I hope this article awnsers the question, what is a high risk merchant account. If you need a high risk merchant account, it’s easy to apply for one. Learn more about how you can get set up with the right merchant account for your business.
You can start processing credit card payments now. You can make working with your company easier than ever before.