There are several reasons that you may be classified as a high-risk business. Most of these are pretty obvious, but others are not as clear as you might think. The first step is to understand what determines whether you are a high-risk business. You will need to know the criteria that credit card processors use to categorize you. Once you establish whether you are a low-risk merchant or a high-risk one, you can then take steps to get processing solutions to suit your business.
What is a high-risk business?
A high-risk business is one that poses a higher chance of fraud or chargebacks for credit card processors. If you will accept credit cards to sell goods or services, you will need a merchant account provider. But if your credit card transactions are too risky, most merchant account providers will not accept you. You will need a high-risk merchant account in order to run your business. High-risk payment processors are easy to find, but they charge more for their services. Since they are assuming a greater risk with you, they will ensure they get a good return for dealing with the extra risk. There are many factors that determine if you are a high-risk business, but it depends on the individual service provider. While some providers may see you as a low-risk merchant, others may categorize you differently. Luckily there are many providers out there to choose from.
What Makes a Business High Risk?
Whether you are seen as a low or high-risk business depends on the individual payment processor. Each has different criteria that they consider. Some of the determining factors are quite obvious. For example, if you sell weapons or deal in adult services, you are most definitely in the high–risk category. The same applies if you sell CBD products or have a gambling site. These businesses are not looked upon favorably by banks and thus are high risk. But so too are businesses with no credit history or poor credit. Also, if your business sells goods that are often returned, you will have a lot of chargebacks. And if you deal in a high–sales volume involving credit card transactions per month, this will increase your risk assessment. As you can see, there are a lot of deciding factors.
Examples of High-Risk Industries
Many startups do not realize they are a high-risk business until they apply for a merchant account. Any business that deals with adult entertainment or pornography are obviously a high risk. So too are all 1800 chat websites and software downloading sites. This also includes selling weapons of any type or hosting online casinos, gambling, or social networking sites. Businesses that sell drug products or health programs are high risk, and so too are hypnotists. The same goes for foreign exchange or Forex websites. Also, telemarketing, offering extended warranties, credit repair, monitoring services, and investment firms. Airlines and travel companies are also high-risk as there is a high chance of cancellations. Furniture sellers and automotive brokers deal in big-ticket items, as do online auctions. And if you are not a US citizen, conducting business in the US will put you in a high-risk category.
Risk Factors You Can Control
If you are a high-risk business you will pay more for the services of high-risk payment processors. A regular merchant account usually has set fees and charges. But a high-risk merchant account is usually priced on a case-by-case basis. So it is in your best interest to try to reduce your risk factors. Firstly, be honest in your application to avoid issues down the line. Try to show you have capital as this reduces the risk for the processor. Providing previous credit card processing history is also a plus. Check with the provider if they require a rolling reserve. That means they will hold back some of your money to handle chargebacks and returns. If you can keep your chargeback ratio low, this may reduce the cost of your merchant account. And make security a high priority. Having fraudulent transactions will greatly increase your risk assessment.
Conclusion
Being a high-risk business is not always a bad thing. There are many payment processors looking to help your business. But choosing a provider that knows how to deal with your industry is vital. There is no getting away from the fact that you will pay more for their services, but you need their support. So try your best to reduce your risk level, but do not cover it up. You need a good relationship with your provider to avoid unexpected surprises. And applying for services is free, so be sure to shop around.
