What is a high risk merchant account?
Payment processors classify certain industries High Risk. All processors consider card-not-present transactions as a risk. For example Internet and over the phone transactions. Well over 50% of all fraud transactions occur with this payment method. The High Risk classification is also typically associated with the industry type and the amount of disputes and chargebacks historically encountered 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 refunds and chargeback's, and thus be considered a high risk business. For high risk merchants it is important to keep on top of chargebacks and just not let them happen.
Other Reasons businesses are considered high risk?
A business can be classified as high risk for many reasons, besides their industry type. The business owner or principal applying for the merchant account 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 average ticket or sale price may be very high, such as over $500 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.
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.
If your business has been classified as high risk then you do not need to be alarmed. For over 18 years we have maintained a positive working relationship with the most capable and reliable processors in the industry. We will advise and guide you to a solution that fits your unique requirements. High Risk merchant accounts come under a higher degree of scrutiny. Processing banks may require background information or business financials. An executive summary would be advised to detail your businesses game plan. Keep in mind, some banks may ask for a higher processing rate because they are taking on more risk. Banks may even ask for a reserve on your credit card processing. The good news is, once you have built up a positive processing history, staying below the allowable 1% threshold in disputes and Chargebacks with your merchant account your business processing will not be interrupted. 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 zero to a low amount of chargebacks and refunds you may wish to investigate why this may be happening and implement policy’s to bring your processing into compliance.