What is a high risk merchant account?
A high risk merchant account is an account for credit card processing where the credit card processing banks have classified the merchant as high risk. If your business has been classified as high risk, most commonly this is do your industry type and the amount of chargebacks you face during the normal course of business. For example, a business related to travel can be considered high risk due to the amount of cancellations that can occur. Travel related businesses are susceptible to outside factors such as the weather or changes in the customer plans. For this reason the merchant may receive a higher than normal amount of chargeback's, and thus be considered a high risk business. Another example would be for Adult related businesses. In this industry is common for a customer to initiate a chargeback and say they never visited the adult site, or "it wasn't me". For business where the customer claims that it was not them who initiated the transaction, it is important to keep records and logs of the customer's visit. For face to face transactions, a signature on the credit card receipt will help safeguard against chargebacks. An adult website may log the IP address and time the website was accessed by the customer. For high risk merchants it is important to keep on top of chargebacks and just not let them happen.
Why is my business considered high risk?
A business can be classified as high risk for many reasons. The business owner may have a low credit score. The business may be brand new and have no history of previous credit card processing. The business may be competing in a new or unproven industry. The company could be selling to customers in a different country than where it is based. The customer may simply not recognize the charge on their credit card statement. In this case it is a good idea to tell the customer what will appear in advance, or to adjust the credit card descriptor accordingly. The average ticket or sale price may be very high, such as over $1000 or even $10,000. The business owner might have had their previous credit card processing cancelled and placed on the MATCH list for receiving too many chargebacks. The timeframe for delivery of the product or service may be too far in the future from the original credit card transaction. This is often true in the travel industry, or for businesses that make customized products or services. A chargeback could occur from a customized product (such as custom furniture) because the customer may claim that the product or service is different from what they expected.
If your business has been classified as high risk then you do not need to be alarmed. You are still able to get credit card processing for your business and operate as normal. Banks my ask for more background information or business financials but you will still be able to accept credit cards just as any other business. Some banks may ask for a higher processing rate in because they are taking on more risk. Banks may even ask for a reserve on your credit card processing. Once you have built up a positive history in your merchant account your business may be reclassified as low risk. If you already have a positive history in credit card processing, the banks will take this into account. A positive processing history would include six months to a year of a low amount of chargebacks and refunds. Credit card processing would like to see a high risk business achieving a chargeback percentage of less than 1% of total transactions. If you are receiving a higher than normal amount of chargebacks, then you may wish to investigate why this may be happening. Your customers may be unclear on the product or service they will be receiving.
High risk processing options
Ballistic Merchant Services offers many solutions to get your allow your high risk business to take credit cards. If you are a brand new business without a positive processing history, you can easily acquire an offshore merchant account. This is also known as a 3rd party merchant account, or aggregate merchant account. In these types of accounts, the processor opens a merchant account where many businesses share the same account. This merchant account is comprised of various high and low risk businesses to balance the overall risk of the account. Since the overall risk, chargeback level, and refund level is balanced with low risk accounts to offset the high risk accounts, this keeps the banks happy. An aggregate merchant account is a special account setup by processors. You are not allowed to share your own merchant account in this way. If a bank found out you were sharing your own merchant account, you could be immediately terminated.