What makes a business need a High Risk Merchant Account?

Not all businesses are offered the same status by payment processors; some are simply offered a basic merchant account, and others are classified as "high risk" and have to find a complete solution for payment processing. Knowing what causes a company to be classified as high risk merchant account may help business owners prepare for the merchant account application process and find a suitable payment processing partner.

Industry Classification

Some businesses belong to an industry that is considered high risk simply because of its industry. Industries such as adult entertainment, gambling online, debt collection, and travel have this risk. High risk industries typically have high chargeback rates and higher levels of regulatory scrutiny. Some operate in a gray area that makes processors uneasy. Even the most legitimate businesses in those industries have a secure transaction from a traditional merchant account provider.

For companies relying on subscription-based services, it is not uncommon to have high-risk status, even though they may offer them as a single trial offer. The risk of a dispute or chargeback grows with the nature of a subscription. Most customers may forget they have one or may not agree with the authorization to charge their account.

Financial Risk Factors

Payment processors look at businesses for financial risk indicators that go beyond just the industry type. Businesses that have had credit difficulty in the past, merchant accounts for the first time, or that have had substantial growth may be considered high risk merchant accounts. Businesses with high transaction volume, particularly those that exceed $20,000/month, will typically elicit additional scrutiny.

Additionally, international transactions pose a risk factor. Businesses that have a high volume of cross-border payments carry a higher risk of fraud and regulatory complexity, making them inherently less appealing to standard processors. Currency volatility, as well as differences in laws governing money transactions outside of the UK, also provide a significant additional layer of complexity that standard merchant accounts typically avoid.

Operational Risk Indicators

Chargeback percentages over 1% will quickly indicate a high risk business. Chargebacks occur when a customer disputes their transaction through their credit card company. Frequent and/or excessive chargebacks suggest potential for fraud, lack of service, or dishonest business practices. Even in cases where the merchant is able to demonstrate service, it is completely possible to lose your account provision with a single month of chargebacks with a traditional processor.

Businesses, not able to provide tangible evidence of delivery of their goods or services (such as sellers of digital products or service providers), are considered elevated risk categories. If a business cannot provide evidence that the customer received the delivery of the good or service, it will be exponentially more difficult to dispute the chargeback.

Regulatory and Legal Issues

Businesses operating in certain regulated industries facing repeated legal challenges are considered high-risk accounts, especially when their business model has been scrutinized by the government. Examples include nutraceuticals, firearms, and tobacco products, as well as any merchant businesses that have previously faced investigations connected to their business practices, along with lawsuits.

Finding Solutions

Don't fret, most high-risk businesses that offer products or services accounted for as high risk industries can establish a stable, long-term relationship with a payment processor. There are merchant account providers developed with high-risk industries identified exclusively, and solutions are tailored to the industry is Trinity Consultings. It is worth noting that high-risk merchants pay a higher service fee, and the agreement will be more restrictive than a low-risk merchant account. The best course of action is to find experienced high-risk processors who understand your business model, offer solutions, and can provide specialized programs which may include but are not limited to: fraud protection, chargeback efforts, and compliance with regulatory requirements. It is very possible as a high-risk merchant to establish a stable long-term payment processing relationship that allows for growth and an enjoyable experience for the customer. 

Comments

Post a Comment

Popular posts from this blog

Comparing Stripe vs Merchant Account: Key Differences and Benefits

Image
When offering payment processing to your business, two of the best options available are put on the table: Stripe vs merchant account . Knowing how these options differ can literally make a huge difference in your business operation and profit level. What Is Stripe? Stripe is a third-party payment processor whereby firms take payments without the need for a single-use merchant account. Stripe as a payment service provider (PSP) aggregates numerous merchants into its master merchant account, making easier the initial setup and reducing entry barriers. What Is a Merchant Account? Merchant account is a business banking account devoted to processing and accepting debit card and credit card payments. While PSPs process payments for different businesses, merchant accounts are for a single business and purchased directly from an acquiring bank or via an Independent Sales Organization (ISO). Most Significant Differences 1. Application and Setup Process Stripe: Lightning-fast application proces...
Read more

Breaking down High Risk Merchant Accounts fees: What you need to know before applying

Image
High risk merchant accounts are necessary for companies operating in high risk industries with high costs of fraud, chargebacks, or regulatory attention. Of the biggest issues facing any merchant entering this market, though, is cost. Getting to know the fee structure around high risk merchant account  beforehand is key to applying—so you can budget accordingly, negotiate the terms suitably, and prevent nasty surprises. This handbook dismantles typical fees, what they pay for, and assists you in making smart financial choices for your company. 1. Why High Risk Merchant Accounts Have Higher Fees High risk merchant accounts are generally more costly than regular accounts because they pose higher risks. Payment processors and acquiring banks require higher fees to compensate for the risks of: Chargebacks Fraud Regulatory action High-volume processing inconsistencies These risks make high risk merchants less attractive to traditional processors. To accommodate these merchants, speciali...
Read more

What is a PayPal Merchant Account and How does it work?

Image
In the era of the digital economy, accepting online payments is a given for most companies. If your business is an e-commerce site, a subscription-based company, or even a solo consulting practice, you have to be able to accept funds from clients securely, safely, and with ease. One of the most in-demand solutions is a PayPal merchant account . But what is it, and how do you get it? Understanding a PayPal Merchant Account A PayPal merchant account is a distinct business account that allows merchants to accept online and offline payments through the PayPal system. It gives businesses the convenience to accept payment through credit cards, debit cards, PayPal balance, and even Pay Later modes—without possessing a PayPal account. This account provides an entry to various tools used to manage sales, send invoices, track transactions, and integration of shopping carts and stores with Shopify, WooCommerce, and Magento. A PayPal Merchant Account's Key Features The below are some of the mo...
Read more