For those businesses that are considered “high risk,” finding a reliable merchant account can be incredibly difficult and frustrating. At Easy Pay Direct, we have extensive knowledge in the industry and experience helping businesses operate smoothly, especially those that are classified as high risk. Today, we’ll be helping to guide you through this topic and discussing:
- What is a high risk merchant account?
- Factors that can make a business high risk
- Benefits of high risk payment processing
- How to choose a high risk payment processor
- General high risk merchant account FAQs
- Why Easy Pay Direct is a great merchant account solution for your business
What is a High Risk Merchant Account?
A merchant account is a banking tool that enables businesses to accept credit card payments. When a certain level of financial risk is involved for the processing bank, a high risk merchant account is needed to protect the bank and allow the business to take credit card payments.
What Makes a Business High Risk?
Often business owners are completely unaware that their company is considered high risk. The first indication is when their processing account is frozen or even closed by a nervous processor. In most cases, a company’s risk profile includes factors like its industry, business model, and method of capturing credit card information. If the business has a processing history, its capacity to manage chargebacks effectively is also a significant factor.
Indicators that You Might Need a High Risk Merchant Account
For a more in-depth look at factors impacting what makes certain businesses high risk, let’s look at some of the top variables individually. Some of the high risk factors listed above may seem arbitrary, but there are a few important elements to a company’s risk profile that a business owner can control. It’s important to know what they are so you can be proactive in managing them.
If your business is already accepting credit cards, then you are building a processing history that plays a part in your risk profile. Three to six months of processing statements are enough to reveal risk-related trends in your processing activity, starting with whether you are actively taking credit card payments. Processing history reveals factors like your chargeback ratio and refund ratio. It can also provide a snapshot of how fast your company is growing and whether your business is cyclical.
Your processing statements also reveal some information about your customer profile such as what percentage of your sales are international and what types of cards your customers use. Credit cards, debit cards, prepaid cards, etc. all have different risk implications.
A chargeback happens when a cardholder reports that a charge on their card should be removed. A few of the most common reasons include:
- Unfamiliar charge
- Unfulfilled purchase
- Product not as described
Managing chargebacks is crucial. Not only is a high chargeback ratio a risk concern for the processor, but it is also monitored by the major Card Brands (Visa, Mastercard, Discover, and American Express). An out-of-control chargeback ratio can result in your authorization to accept cards being revoked.
Often when there are a lot of chargebacks the reason codes can help identify what strategies will improve the chargeback ratio. For instance, the descriptor (the business information that appears on the cardholder’s statement) may need to be changed if many chargebacks are filed due to unfamiliar charges.
Personal Credit Score
A high personal credit score indicates that you manage money, credit, and personal financial risk well. That makes you the kind of person financial institutions want to work with. Your personal credit score affects the business risk profile because the processor assumes you will handle the business finances similarly. They also depend on you to be responsible for any financial obligations if the business fails for any reason.
When it comes to high risk merchant accounts, a lower personal credit score can be considered together with other factors to offset the potential negative impact on an application approval. For instance, strong financial statements can minimize the impact of a low credit score.
Similar to processing statements, business bank statements tell a story. They reveal whether you keep a healthy balance in case of unexpected costs, like a chargeback, and what kind of operating margin you have available. If you operate a high risk business on a narrow margin, processors are more likely to impose a reserve on your merchant account. A reserve is a percentage of your sales that are held in an escrow account to cover expenses in the event that you default on fees.
Most reserves are operated on a six-month rolling cycle where reserve funds that have been held for at least 180 days can be released. Other reserves are set with a cap. Once that limit is met, no additional reserve funds are collected.
Method of Accepting Payments
How card data is captured for a transaction is an important consideration in a business’ risk profile. There are two primary categories: Card Present and Card Not Present (CNP).
Card present transactions occur when the cardholder is present at the physical location where the payment is being accepted. The card is swiped, tapped, or inserted into a card reader that encrypts the information. This is considered the most secure and least risky option.
Card Not Present (CNP)
With card-not-present payments, the cardholder is not physically present at the business when the card information is captured. Because of this, the identity of the cardholder is not as easy to confirm, making CNP payments high risk. Card-not-present payments include online checkout pages, digital pay-by-phone setups, and payments accepted by a salesperson on the phone.
High Possibility for Fraud
Any situation where fraud occurs more easily is considered a high risk scenario. Taking measures to minimize fraud may lower your risk profile. One example of fraud management is to use CAPTCHA on checkout pages when accepting card payments online. This prevents bots from testing lists of stolen credit card numbers on your website.
Another fraud management strategy is to minimize ‘friendly fraud’ (when a customer uses the chargeback process to get free products and services) by using a chargeback alert service and refunding disputes before they are registered as chargebacks.
Common Industries or Business Types that Are Considered High Risk
Every business is unique and there are varying degrees of risk associated with each company’s business model and profile. However, there are some industry categories that are considered high risk no matter how healthy and stable a particular company within the industry may be. Much of this reasoning is due to the factors that we just discussed.
A sampling of high risk industries includes:
Some business models are also automatically considered high risk. A few examples are:
- Subscription or payment plan products
- Delivery more than 30 days after purchase
- Trial offers or extended guarantees
- MLM Companies
Benefits of High Risk Payment Processing
Operating a high risk business comes with a number of challenges, but having reliable credit card processing doesn’t have to be one of them. A high risk payment processing account that is tailored to your company provides peace of mind knowing your processor is prepared to flex with your business needs.
Some features you can expect from a high risk payment processor include:
- Detailed Underwriting: minimizes the unpleasant surprise of account holds, freezes and closures due to unexpected risk activity.
- Broad Range of Products and Services: welcomes industries that are not permitted with standard merchant accounts.
- Higher Maximum Transactions: offers high ticket amounts that match your pricing model.
- Approved Volume Increases: approves monthly volume amounts that can scale with your business.
- Chargeback Thresholds: works with you to mitigate high chargeback activity rather than close the account without warning.
- Refund Ratios: expects higher refund activity to prevent chargebacks from occurring.
- Global Expansion: allows greater freedom to pursue commerce across international borders.
- Dedicated Support: provides a team of knowledgeable support professionals who understand the needs of your specific business model and industry.
Choosing the Best High Risk Payment Processor
Just as all processing accounts are not created equal, not all high risk payment processors are suited to every business profile. Many high risk processors prefer to work with one type of industry or business model over another.
It’s crucial to work with an experienced high risk payment provider that can help pair your business with the right processing account. At Easy Pay Direct we have decades of cumulative experience finding the right account with the right features to meet the needs of each high risk business. We are equipped to leverage our extensive industry relationships and processing knowledge to help make your high risk payment processing journey safe and easy.
Factors to Consider When Choosing a High Risk Merchant Account Provider
As you consider which high risk payment provider is the right fit for your company, it’s important to be informed about what the provider is really offering. Just because they are ‘high risk’ doesn’t mean they offer the specific features your high risk business needs.
World Class Support
It’s essential to have a support team that is experienced and knowledgeable. From solving your processing dilemmas, to integration support and helping to handle a processor risk inquiry, you need a team that’s there for you throughout your processing journey.
Industry Categories and Business Models
Be sure the processing partner you choose can support your industry and business model. The right provider is well aware of which processors are actively accepting applications for businesses like yours.
Your processor absolutely must have proper industry security certifications and be equipped to help you obtain them as well. Verify that the partner you choose has strategic fraud prevention tools and chargeback mitigation options as well.
Integrations can be a headache. It’s important to choose a provider with a wide range of integration options that can also help troubleshoot any hang-ups along the way.
A High Risk Payment Gateway
Easy Pay Direct is a one-stop merchant account provider and payment gateway. We offer direct integrations to the top shopping carts in the industry and the documentation and support to make your custom integrations easier.
With our patent pending load balancing system, not only is your processing safe and secure with Easy Pay Direct, it’s also easy to manage multiple merchant accounts all in one place.
What to Expect When Partnering with a Payment Processor
It all starts with an application. Because this is a high risk application, there are a number of documents required to complete the submission. Known as “KYC” or Know Your Customer documents, many of these items are required by law. While the sensitive nature of some requested items may feel invasive, they are necessary.
Here are the most common items to have on hand when you submit your application:
- Driver’s License or passport
- Last three months of business bank statements (if your account is new personal bank statements may be used to supplement any statements you don’t have yet).
- Last three months of processing statements (all current processors!) if available.
- Articles of Incorporation (a Secretary of State business name filing may be sufficient if the business is not incorporated).
- EIN or social security number confirmation in the form of an IRS letter SS-4 or an I-9.
- Void check for the business bank account where deposits will be made.
Once your application is submitted, the processor’s underwriting team will review it along with your supporting documents. If everything is in order, you should have your approval in as little as 3 days, although the process can take a couple of weeks. The best way to help speed things along is to promptly provide any additional documentation or information requested by the underwriting team.
High Risk Merchant Account FAQs
What is considered a high risk transaction?
A credit card transaction is considered high risk if the cardholder is not physically present to insert, swipe or tap their own card at the point of sale.
High risk processing also includes credit card payments accepted by a company that is considered a high risk merchant based on any of the criteria mentioned in the “What Makes a Business High Risk?” and “Common Industries or Business Types that are Considered High Risk” sections above.
Do I need a high risk payment gateway?
A high risk business absolutely needs a high risk payment gateway to process credit cards in a safe and secure manner. A high risk payment gateway like Easy Pay Direct includes important features like the robust Fraud Protection tool and our Customer Vault that securely encrypts sensitive data. Real-time transaction reporting and our patent pending transaction routing option add an extra level of protection and control for high risk merchants.
How long does it take to get approved for a high risk merchant account?
In most cases, a high risk merchant account can be approved within 3 to 10 business days of a complete application packet being submitted to underwriting. Longer approval times are almost always due to delays while underwriters wait for additional information from the business owner. Staying on top of any requests for supporting documents expedites your application!
Can I get a high risk merchant account through Shopify?
Not exactly. Shopify does not accept applications for merchant accounts with any provider except Shopify Payments (a division of Stripe). However, if your business uses Shopify, it is possible to integrate your high risk merchant account to their platform. Our team is experienced in this type of integration. We’d be happy to discuss your options!
Can businesses accept high risk Paypal payments?
Paypal is not a high risk merchant account provider. You may “squeak by” with a Paypal merchant account until they realize your account is being used for high risk payments. But beware — we’ve seen countless entrepreneurs have to put their businesses on hold when their account with Paypal was frozen or closed without notice due to risk concerns.
Most companies can not afford to press pause on accepting payments for a couple of weeks while they scramble for a high risk processing solution to replace the closed account.
Does Stripe handle high risk businesses?
Stripe, like Paypal, is what is known as an aggregator. Aggregators are payment processors that pool a large group of businesses under a single merchant account and require all of them to play by the same rules.
One problem with this is that the merchant account is not underwritten to handle a high risk business model. When a business processes high risk payments they “break the rules” of the account and skew the risk profile. In order to maintain the pooled account profile, Stripe simply eliminates the unruly account from the group. As with Paypal, it might work in the short term, but there is no warning when an account will be closed or frozen.
Still have questions? Our knowledgeable team is available to help!
Why Trust Easy Pay Direct for High Risk Merchant Account Solutions?
Easy Pay Direct has been making things easier for high risk business owners from day one. We take pride in our ability to find processing solutions that propel companies to their greatest potential without getting bogged down in the details of payment processing. Easy Pay Direct is your solution for easy and safe high risk credit card processing designed to meet the unique needs of your business.
Our clients love the world-class service and simple solutions we provide every day, as these testimonials affirm. We would love to be part of your success story, too!