Starting a new business venture is exciting but it can have many challenges. If the business that you’re engaged in or trying to build falls into the high-risk category for payment processing, you’ll face a few more hurdles in securing a credit card processing account than most low-risk merchants. You’ll need a credit card processor that specializes in supporting high-risk accounts and can still offer competitive rates and terms. With high-risk can often come great reward – but banks don’t always see it that way. High-risk credit card processing is the payment transaction processing component associated with high-risk businesses.
Some high-risk businesses have high chargeback rates, are easy prey to repetitive fraud transactions, or are operating in an industry that is prone to failure so finding a payment processor that has a successful track record supporting high-risk merchants is of the utmost importance. There are several risk management factors that payment processors, banks, and even insurance companies scrutinize in deciding whether to take you on as a client and whether that risk lands your account in the high-risk bucket. If your account is designated high-risk, you’ll most likely pay higher transaction processing rates and account fees, and be subject to reserves.
Is my Account considered High-Risk?
When searching for a payment processor for your business it’s crucial to learn the specifics of what designates a merchant account as high-risk. It’s also very important to remember that each credit card payment processor and the bank has its own unique policies regarding what defines high-risk and what factors result in that designation. It makes sense to do your homework by reviewing account terms on each website and contacting a sales rep if you have specific questions. Even if your business doesn’t fall into an obvious high-risk category, you might be surprised by other factors that could result in any business being branded high-risk.
High-Risk Industry or Product Type
The industry or type of product or service that your business offers may automatically designate your merchant account as high-risk. For instance, if you intend to operate an online casino or you’re in the adult product sector, credit card processors and banks will label your merchant account high-risk.
Other businesses that automatically fall within the high-risk box are those that banks may deem questionable in regards to their legitimacy. A good example is any business operating in the emerging legal cannabis industry. Cannabis is still considered illegal by the federal government but is subject to a patchwork of legal regulations across a growing number of states. There are many other business types that are typically flagged as high-risk; a few examples are e-cigarettes, firearms, lotteries, and sweepstakes. These high-risk business categories are restricted by some of the more commonly known direct payment processors.
Consider a fledgling retail business that signs up for the quick and easy payment processing provided by Square. The benefit of signing up with Square is that the application process is super quick, simple, and doesn’t even require a credit check. Square has a broad list of high-risk businesses that are restricted from becoming clients but they don’t screen application requests up-front to see if each merchant falls into this category. As such, Square’s fraud prevention team could flag this particular account as operating a prohibited business, weeks or even months after the business has been established and then abruptly shut it down.
Chargeback or Fraud Potential
The issue of chargebacks is a significant challenge for today’s business owners, banks, and payment processors. So, what is a chargeback? A chargeback is when a customer disagrees with a charge, or the amount of a charge on their credit card statement then contacts the credit card issuer to deny the charge and request a full or partial refund. Ideally, the customer should reach out to the merchant first when they have a billing dispute but that’s not always the case. Some industries that are prone to chargebacks include credit repair, dating services, tech support, cryptocurrency, and even travel agencies.
As an example of how chargebacks can affect your merchant account, let’s say that you have a start-up travel company. You and your employees are diligent in researching optimal travel experiences at competitive prices but unfortunately, you find yourself with a client base that is habitually canceling trips. Or maybe clients are frequently calling their credit card company to request a chargeback because they found an alternate flight at a better price and intentionally didn’t notify you because the tickets you sold them were non-refundable. In this scenario, excessive chargebacks can result in your operating funds being frozen by the bank or your payment processor to mitigate their financial risk. As a merchant, you could find yourself underwater in a tidal wave of excessive chargeback fees and lost revenue.
Large Payment Transaction Amounts
If you’re engaged in an industry that typically takes large payments, this places your business in the high-risk category as well. This includes time-shares or furniture businesses, and can also include tourism, and the travel services example previously mentioned.
Other Considerations Affecting Merchant Risk
Some other issues that can affect your merchant risk-management score include whether you are operating an offshore business, or if the service that you’re offering typically falls into the ‘scam’ category.
Finally, a crucial factor that banks consider in deciding whether to grant you a merchant account is your personal credit score. If you have a financial history of late payments and are already carrying a large amount of debt, your chance of qualifying for a merchant account with low rates may be slim, but if you choose a payment processor like Payline that has a reputation for working with high-risk businesses, your odds of getting the approval you need will improve considerably.
Important Factors in choosing your High-Risk Payment Processor
The most compelling factor in choosing a high-risk payment processor should be partnering with a company that has a great reputation for servicing high-risk merchant accounts. You’ll also want to make sure that your credit card processing company is honest in its sales and advertising practices. Ideally, they should offer outstanding customer support and provide fair pricing and contract terms.
Payline has an outstanding reputation that includes highly responsive email and phone support. Additionally, all of Payline’s clients have access to Interchange plus-pricing (as opposed to tiered) which is some of the most competitive pricing in the payment processing industry. Payline also offers same-day approval, even for some high-risk merchant accounts.
In researching payment processors for your merchant account you may have come across some payment companies that work as aggregators.
What is a Payment Aggregator?
An aggregator is a payment processing entity that ‘aggregates’ various payment processing companies on the back-end under one umbrella to find each client the best possible fit for it’s unique high-risk account needs. An aggregator is comparable to an insurance broker that writes policies for several different insurance companies to cover a wide range of insurance needs at competitive prices for their customers.
SMB Global is one such aggregator, it’s a brand that was spun-off from Payline just 4 years ago. SMB Global offers high-risk merchant account services globally and to a wide variety of business types including offshore businesses and even the CBD industry. SMB Global is known for offering competitive pricing and great customer service but due to the intermediary nature of their business structure, they don’t offer any pricing or account-specific information on their website. Also, if you’re a high-risk merchant you will most likely wind up with a 3-year contract, and a tiered pricing structure rather than interchange-plus pricing.
Most payment processors and aggregators aren’t able to publish specific information regarding rates and fees for the needs of your unique high-risk business on their website, so reach out to a sales rep and most importantly, do your homework. A credit card payment processor that has a stellar reputation for quality customer service and support for every client including those that are high-risk, like Payline does, is the best place to start.