In the online payment processing setting, a business is labelled as high risk for two major reasons. One, your business has been proven to be highly susceptible to massive financial failure based on past profitability records and credit history. The other factor is that your enterprise operates in an industry that is generally considered unstable and uncertain. But, either of the two elements can severely inhibit your business from sourcing high-end merchant accounts and financing.
Inevitably, high-risk merchants must learn to operationalize their businesses effectively.
Here is a quick guide to the effective management of a high-risk business.
When Can Your Business Be Considered High Risk?
A compound of factors determines whether a business is high-risk or not. Usually, the high-risk label is applied using various criteria. But, generally, these are some of the components that qualify an enterprise as high-risk.
- Chargeback Risk – A high-risk merchant account is associated with extremely high chargeback risk. This is the susceptibility to receive disputed charges by a cardholder, typically prompting payment reversals. Chargebacks are more popular in some industries, such as the electronics and travel sectors.
- High-Volume Transactions – Businesses running transactions of $500 or more are ranked as high-risk merchants.
- Minimal Transaction History – Merchants with zero or minimal track record of online payment processing are also labeled as high-risk.
- Poor Credit Rating – Low credit scores reflect an enterprise’s lack of financial capacity to run its operations and, therefore, are categorized as high-risk.
What Is a High-Risk Merchant Account?
This is an online payment processing account that enables businesses to accept credit card payments but is generally considered more vulnerable to financial and industrial failure. To be considered high-risk, an enterprise must bear various characteristics, such as high chargeback rates, large transactional volumes, and low credit rating.
Since there are no centralized regulations to determine high-risk merchants, different financial institutions and payment processors create their own rules for high-risk labeling.
A high-risk merchant account differs from ordinary accounts in various ways. These include higher processing fees, expensive chargeback rates, volume caps, and multiple transactional requirements.
What to Look for When Choosing a High-Risk Merchant Provider
Generally, there is no standard pricing information about high-risk merchant account providers online. Most service providers rely on custom pricing models. You might want to consult with company representatives before deciding on a merchant provider. Again, other than pricing, there are lot more factors to consider when choosing a high-risk merchant provider.
Your business is considered high-risk because of the complex nature of its operations or outlook. Therefore, you will need a service provider that is both experienced and reputable. Look at customer reviews and understand how different clients feel about the service provider. The objective of going for a high-risk merchant account provider with a good reputation is that the same flow into your business in terms of customer trust and loyalty.
Variety of Payment Options
Look for a service provider that is flexible in the kind of payment gateway options offered. This way, it is easy to implement multiple payment solutions under one account for all your business payment needs. Such flexibility should extend to the features, conditions, and rates you get before and after opening a high-risk merchant account.
Multilayered Approach to Security
With the growing credit card fraud, you need a merchant account provider that guarantees data and transaction security. Identify a service that applies multiple anti-fraud tools to safeguard your account and business against fraudsters and cybercrimes. The best way to pick such a provider is by scouring through their security compliance history. Are they PCI compliant? Is the payment gateway AVS-enhanced? Is the provider EMV certified?
High-risk merchants experience more chargebacks than any other business. Therefore, you need a service provider that will adequately offer you chargeback assistance any time charge disputes arise. The merchant account provider should have a professional team that can address upcoming chargebacks, identify chargeback sources, and highlight hidden chargeback triggers.
Payment Card Industry (PCI) compliance is a global security standard that requires all businesses within the card payment industry to maintain a secure transaction environment. PCI-compliant providers should service high-risk merchants for guaranteed security against payment card data breaches, theft, and fraud. Essentially, PCI compliance is a sign of commitment by the account provider to secure your data through the industry’s best security practices.
Which are the Most Common High-Risk Merchant Account Fees?
Technically, high-risk merchants pay more to integrate their businesses with online payment processing systems. This is because of the high cost and fees associated with getting a high-risk merchant account.
Here is an outline of the typical account fees that high-risk merchants incur.
- Chargeback Fees – This is probably the most common of all costs linked to high-risk businesses. Chargeback fees arise when a customer disputes a charge to their account. While you may win a chargeback claim, fees surcharged to your account by the acquiring bank are non-refundable.
- Reserve Fund – This is the amount your bank holds to safeguard itself against potential chargebacks. The fund is withheld until the expiration of the chargeback time.
- Termination Fees – These are costs incurred by high-risk merchants for terminating their accounts before the agreed timeline.
- PCI Compliance Fees – Merchants must pay a fee for all PCI compliance services the account provider offers.
The high-risk merchant label does not always signify a financially failing business. In fact, in most cases, the label only indicates that credit card processors consider you more susceptible to various risks than other businesses. The good news is that more service providers are willing to offer you a high-risk merchant account, provided you meet their stipulated requirements.