The digitalization of the world leads to an increasing number of businesses looking for expensive payment processing solutions. Only 19% of customers prefer cash to make payments. High risk payment processors serve diverse verticals in a corporation, but some other businesses circumspect this. They are high-risk industries that face fraud or chargebacks.
Who needs payment processors, and how is it determined? You must find the payment processor if your business comes under the high-risk category. From this article, learn more about this, and help you find the right payment provider partner for your business demands.
High-risk merchant account
There is no central authority or framework in the payments business that shows the risk factors associated with the company. Businesses classified under high risk need a high-risk merchant account to accept payments through credit and debit cards. If your company has increased chargebacks or frauds, it is a high risk, and there is a need for payment providers.
Alternatively, all banks and payment processors have their own set of standards. It concerns a provider’s internal criteria and outlook toward risk management. Some providers may reject industries to serve. Others may need detailed information about your business to determine risk; based on this, they will accept the application.
Factors that determine a merchant are high-risk.
Any business that runs with higher risks is considered a high-risk business. The following are some examples of high-risk industries:
- Online Gaming
- CBD or cannabidiol
- Multi-Level marketing (MLM)
- Pawn shops
- Adult products
- Tech support
- Search Engine Optimisation (SEO) services
Apart from this, there are several factors labeled as a high-risk business:
- If you are a new entrant into the business, you are labeled as high-risk by some providers.
- If your statement shows poor credit or low credit scores for a loan, etc., it represents that you are a high- risk. A provider keeping you on the match list will increase your risk perception.
- Using controversial products or on a slippery legal slope.
- Businesses that depend upon international sales are categorized as a high- risk. It is due to the unpredictable economic dynamics abroad.
- Under the control of legislation or government, Industries get marked as high-risk.
Difference between a high-risk account and a regular account for payment processors
It seems daunting to have a high-risk business, and there is a chance of declining your application to the processor. But on the other hand, your processor may select to offset your risk by using some measures.
a. Longer applications
The service provider may ask you for much information regarding your high-risk merchant account. By this, they will analyze the risk profile and study the history of your finances. They will check their processing history, even your personal credit history.
b. Higher payment processing fees
For a low-risk business, payment processing fees maybe 0.3%, and for high-risk, this could be up to 15% with the interchange rate. Interchange fees may differ from one company to another, and higher risk demands more fees.
c. Higher chargeback fees
When there is a need to process refunds, you have to pay chargeback fees to the providers. Costs range between 20 and 100 dollars each. High prices may charge for excessive chargebacks.
d. Volume cap for credit card processing
Credit card processors may remove you from processing any more transactions because your sales volume exceeds a limit. Processors will deal with the high volumes.
e. Additional requirements
Based on the type of business, some processors may need other things from high-risk merchants. For example, if you are selling age-restricted goods, the processors recommend using tools to ensure they do not sell them to underage customers. The processor will only approve your account once you fulfill their conditions.
Need of a payment processor
If you are a high-risk merchant, you will need a payment processor. You keep the following things in mind:
1. Maintain healthy cash levels
Payment providers like to maintain a healthy cash level in their business accounts. It results in the picture of financial stability, and it lowers the risk perception.
2. Try to reduce chargebacks
Some factors result in an increased number of chargebacks in your business. It may be due to the mismatch between the product description and the actual product. It may be due to the prolonged delivery times. Whatever the reason, there is a way to reduce your chargebacks.
3. Be transparent
You should keep all information related to your business from the payment providers. Submit all materials and information while processing your application. If not, it will put you into a problem and affect your credibility. High-risk merchants are asked for detailed information about your business and finances. To this, you should be honest and transparent.
4. Keep your documents ready
You have to keep it ready, six months of bank statements and tax returns for a few years. Each provider has its own set of needs and makes sure to be available to you.
5. Follow the guidelines of your payment processor
Your business needs online transactions using credit cards, and you must apply for them. Moreover, there is also a need for the risk-taking ability of the processor. Hence, you have to do something to decrease the risk by consulting with them and following their guidelines.
Way to find a high-risk merchant service provider
There will not be a standard price for high-risk business merchant accounts on any websites. Therefore you have to arrange meetings or private consultations with their representatives. Make a list of payment processors that are likely to serve your industry. Payment cloud, Durango merchant services, Host merchant services, pay line data, etc., are popular.
After selecting the options, clarify the following doubts:
1. Know the kind of experience with industries.
2. Time takes them to deposit payments
3. Whether they have a reserve requirement?
4. In addition to the debit card, and credit card, confirm if they can support e-Checks and ACH payments.
5. Is there any charge for an early termination fee, suppose you switch to another provider in the future?
6. They provide equipment like POS machines, virtual terminals, etc.
You might be clear now that some businesses are under risk factors. The high- risk may vary from one merchant and processor to another. The entry point of processors is easy, but merchants’ risk might get cut off at any time.