As well as your business may be going, you’ll inevitably hit some roadblocks from time to time, and that’s okay…
One challenge that may arise is dealing with your merchant bank and your relationship with them. Depending on what type of industry you are in, and the types of customers you have, you may be at higher or lower risk of getting shipping delays and refunds.
And, if you notice these things happening to you, you may already be considered a high risk merchant account in the eyes of a bank.
There are some things that you can do to help increase your chances of being approved, and approved on good terms, but bottomline, if your business is in a high risk vertical, your bank will still consider your account to be high risk, even if it gets accepted.
So in order to ensure the best relationship between you and your bank, you need to consider several factors that determine what a high risk merchant account is.
In this article, we’ll go over the key details on:
- What determines a high risk merchant account
- What are common examples of high risk verticals
- Things to consider with high risk credit card processing
- Why should get a high risk merchant account
- How to increase your chances of getting approved
Also before reading on, ask yourself if your business has a high risk for:
- Chargebacks
- Fraud
- Disputes
- High amount of legal restrictions
- Damage to a bank/payment processor’s reputation
If you answered yes to any of these questions, we may be getting closer to assessing how much of a risk you are as a merchant, and what solutions are available to you…
What is considered a high risk merchant account
So as previously alluded to, a high risk merchant account is simply a merchant that is considered to be a liability to a bank or payment processor, and can threaten their profitability.
What is high risk in the eyes of a bank?
As mentioned earlier, if your business has a high chance of getting chargebacks, fraud, disputes, legal restrictions and liability, and poses a risk to a bank or payment processor’s reputation, you are, in all likelihood, a ‘high risk’ merchant.
Congratulations, you win more scrutiny, higher processing fees, and a higher chance of getting dropped, thus threatening the sustainability of your business!
Ok, but all jokes aside, you at least have a crucial piece of knowledge to address the issue at hand. The unknown is now known, so what’s next?
What else do we have to consider?
High risk verticals
Now that we have established what a high risk merchant account is, the next crucial piece of information to consider is the vertical you are located in, and whether it is high risk.
Bottomline, you are typically considered a high risk merchant because of the market segment you have as customers, and the products that you sell. The who, what, where, when and why really matters here…
So what are some examples of high risk verticals?
Some common examples include:
- Travel websites that accommodate airfare, hotels and give packages
- Diet pills, supplements, non-prescription pills/liquids (Nutriceuticals)
- Adult entertainment/dating/products
- Electronic cigarettes (Vapes)
- Prepaid phone cards
- CBD oils
- MLM
There are more, but these are the most common industry verticals that are known to be
risky, and are typically considered a risk for banks and payment processors.
If you are in any of these industries, it’s best that you know the terrain so you can eventually get the highest gains…
What to consider with high risk credit card processing
Once you know that you are a high risk merchant, and that you are in all likelihood in a high risk vertical, the next component you’ll need to consider is the credit card processing side of things.
In order to ensure the best outcomes, you should consider a couple things…
- Being in a qualified vertical
Some of the previously mentioned examples qualify for high risk credit card processing, but it’s important that you do your research and verify the details to be certain.
- Your credit card provider’s risk tolerance
The truth is, what is considered high risk can vary between providers. If your payment provider trusts that you will not bring fraud and reputational risk to them, they may be more open to working with you compared to someone else.
- Your billing model
How you bill matters, and some are riskier than others. Specifically, if you use a free trial or a time limited trial (i.e. $7.95 for a 14 day trial), at the end of the trial, the consumer will be auto-enrolled into your subscription. It can happen from time to time that consumers will forget about their trial, or cancel their subscription afterwards and demand a refund. This adds a lot of risk in the eyes of a bank as chargebacks and refunds may be frequent with you…
- Underwriting guidelines
Are you worthy of their credit as a borrower? Typically, merchant banks want to see a credit score of at least 650+, so you may want to check up on your current score, and see if you meet it. With this in mind, depending on the terms that they set, their standards and their processing fees, you may find yourself having a higher or lower chance of getting approved.
- Offshore businesses
Being offshore can be perceived as risky, and this can depend specifically on where your customer is paying from, the applicable laws in their area, and the instances of fraud that happen there.
Once you have considered these factors, you’ll have a better grasp of whether or not you’ll have a higher or lower chance of being accepted for high risk credit card processing.
Stay tuned if you qualify as a High Risk Merchant Account for the next steps in getting your business rolling in the right direction. We can read all about this in the second part of this article.