High Risk Merchant Account
The credit card processing industry considers some lines of business to be “high risk.”
The criteria used by each credit card processor to determine exactly which businesses are high risk and which do not vary from processor to processor.
Some industries in general tend to have a higher incidence of fraud, canceled transactions, and/or chargebacks that make them a greater risk to credit card processors.
Other companies have individual circumstances like previous bankruptcies or other financial concerns that may make a credit card processor hesitant to establish a merchant account with that business.
In many instances, being in a “high risk” industry means you can kiss your hopes of getting a merchant account goodbye.
Some of the most popular credit card processors do not work with high risk businesses at all.
Easy Pay Direct makes things easier for you all the time — and we happen to specialize in getting high risk accounts approved!
We can leverage our extensive network of processors to ensure that you get the best rate for your high risk business.
As previously mentioned, these industries tend to have certain patterns of business that make them a greater risk compared to other businesses.
WHAT MAKES A BUSINESS HIGH RISK?
While each credit card process makes its criteria to determine which businesses are high risk, there are general factors that can be predicted to make a business classified as a high risk business.
Any credit card transaction where the card is not physically present is considered less secure than those where the card is present.
As a result, businesses that operate solely via eCommerce or hold customer card information to process regularly may be considered high risk.
Some security measures that are built into the chip readers and card terminals are removed when card information is transmitted digitally. Also, fraudulent activity is much more likely to be conducted in card-not-present transactions.
Since there is an increased risk for fraud and consequently an increased risk for customer disputes and chargebacks, this is a higher risk for credit card processing companies.
INCREASED RATE OF CHARGEBACKS
A chargeback occurs when a customer disputes a credit card transaction through the issuing bank and the transaction gets reversed.
This differs from a traditional refund which can be issued by the business. Chargebacks are costly for both the processor and the business.
Chargebacks can occur more frequently in some businesses like subscription-based services where a customer may notice they were billed for a cycle and then seek to cancel their subscription.
Another example could be the travel industry where a large purchase is made for a trip but then the customer changes their mind and cancels. This size chargeback has the ability to greatly impact a business’s bottom line since the transaction amounts are so large.
A business in any industry can face a higher rate of chargebacks if they have customers who are often unhappy with the product or service. When you apply for a credit card processing account, you often need to provide a transaction history so the processor is able to see your business patterns.
LARGE TRANSACTIONS AND HIGH SALES VOLUMES
If a business has large transactions, often they have a less total number of transactions. This makes each transaction that much more important.
A business with large transactions can be concerning for a credit card processor because that business poses more risk if they are unable to cover refunds requested of them.
To counteract this, many credit card processors that extend accounts to high risk businesses may require a capital reserve to cover unexpected chargebacks.
Businesses with high total sales volumes also pose a risk for the same reasons. Easy Pay Direct has a patent-pending method called Load Balancing that effectively mitigates this risk.
With Load Balancing, Easy Pay Direct spreads out transactions across multiple accounts so that no single account is high risk. Instead, a business will have several smaller accounts with lower risk.
HIGHLY REGULATED INDUSTRIES
Industries that have a great deal of government-imposed regulations face a challenge for their business.
These regulations hinder their business and make it more difficult for them to sell their goods or services.
Since these industries are so highly regulated, there is also the potential for the regulations to change quickly and negatively affect that business.
Due to unknown future regulatory measures surrounding these industries, they are considered high risk by most acquiring banks.
Surprisingly, in recent history, the Obama Administration Department of Justice had a controversial effort called Operation Choke Point which actively discouraged payment processors and banks from extending services to some of these industries.
Although the businesses were operating lawfully, they sometimes became the targets of fraud investigations.
Unfortunately, the controversial stigma surrounding some industries makes them risky to do business with.
INDUSTRIES THAT NEED HIGH RISK MERCHANT ACCOUNTS
There are many industries that banks consider to be “high risk.” If your business operations lie in one of these sectors, you might have trouble establishing a merchant account.
Some of the common industries are:
- Anything to do with alcohol
- CBD and Cannabis
- Subscription-Based Services
These industries may have one or more of the factors detailed above: high potential for fraud, large transactions, highly regulated, or higher than average rate of chargebacks.
ACCOUNTS FOR HIGH RISK BUSINESSES
If your business is determined to be high risk for whatever reason, hope is not lost. Many credit card processors are experienced in working with high risk businesses.
These businesses have years of experience servicing businesses efficiently and working together to mitigate some of the risks posed.
Some payment processors may have chargeback dispute resolution services that notify business owners when a chargeback occurs and helps them resolve it. Others like Easy Pay Direct, offer Load Balancing to lessen the risk to the processor.
Choose a processor that has experience working with businesses like yours so they can help you navigate the challenges that accompany having a high risk credit card processing account.