While business owners are rushing to find a means to process transactions during the pandemic, some businesses are having an easier time getting approved than others. This is due to avenues of high risk merchant services being deemed more likely to receive fraudulent orders & chargebacks.
Being left with a high risk merchant account as your only option is better than nothing, but it also comes with a higher cost of processing credit cards. And while being on thin ice, there is still a chance of being rejected or being denied services later on.
Examples of High-Risk Vendors:
A prominent example of high-risk businesses would be those selling vape pens & juices, in which they specifically seek out an online vape merchant account to conduct business. This is prominently due to new rules set by the FDA in 2016 that restrict payment processing of vendors selling vape products. It doesn’t help that both Visa and Master card are now enforcing a $1,000 annual fee to accept payments as an online vape seller.
Another line of business requiring a high risk merchant account would be those cashing in on the new legalized CBD & hemp markets. The problem with this niche is how it is only legal in certain regions of the United States and is even more of a gray area internationally.
Businesses With Poor Records
You don’t necessarily need to offer shady products to be considered a “high-risk business”. Even an innocent clothing shop could be at high-risk if they have a history of chargebacks with previous payment processors, an owner with a bad credit score, or even a poor public image.
If a payment processor believes you poorly manage your business, they have the right to push your into the high rate bracket, or just flat out deny your application.
Drawbacks of a High Risk Merchant Services
When a payment processor puts you into the risk category, they may make some aspects of your business a bit harder. This may include:
- Higher rates of transaction.
- Required to sign long-term contracts.
- Fees associated with chargebacks.
- Fees for backing out of contracts too early.
- Being susceptible to account termination.
Applying for a High Risk Merchant Account
While any sort of merchant account requires extensive information about your business & people involved, companies offering high risk merchant services could be even more stringent. Expect to present documents like tax returns, business registration, and a credit check.
Also, not every payment processor has the same classification of high-risk businesses, so you may get rates lower or higher compared to the competition. It would be a good idea to ask around for rates before submitting a round of formal applications.
Once you are approved and offered a contract, be sure to read & comprehend the terms closely. There may be certain terms that can end up costing you more money than just what they are charging, so be vigilant.
You also have to do your own part by sorting out bad eggs in your consumer base. If you are running an in-house e-commerce site, be sure to install any available plugins/software to shut out potential fraud cases. Also, manually weed out customers that seem troublesome from the start to avoid chargebacks.
Being considered a high risk merchant isn’t the end of the world, and it’s unlikely your competition is better off. It’s important to remain diligent about payment processing competitors to make sure you are getting a fair rate, and if legislation and/or credit score improves, you may negotiate your way down. After all, accepting credit cards at a slightly higher rate is better than not being able to do business at all.