Whether you are an entrepreneur or a business manager, you know that in today’s highly competitive market, for a business to stay ahead of the curve, it needs to deliver excellent customer service. And one of the best ways to better serve your customers is to provide them with the option of being able to make purchases with debit and credit cards. People are no longer carrying cash, and you probably won’t see anyone taking out a money clip to pay for products or services. Customers want to enjoy the convenience plus security of using credit/debit cards. While some businesses can survive with just a payment service provider, there comes a time when it’s inevitable for a company to acquire a merchant account.
Who Is A High-Risk Merchant?
While it would be amazing if all business were treated equally by credit card processors, the fact is that they are not. Moreover, there aren’t any specified criteria, set standards or rulebook that is used to classify one merchant as high risk. Different credit card processors and banks use different approaches to assess businesses. Typically, when you apply for a merchant account, processors carefully evaluate your business in order to determine whether to categorize your business as high-risk or exempt you from this designation. Therefore, a high-risk merchant is a business that presents a high degree of financial risk to the bank or credit card processor.
What Does It Mean For Your Business If You Are Categorized As A High-Risk Merchant?
A majority of business owners are awestruck when they learn that their business has been identified as high risk. But while there might be dire consequences for your business to be labeled as a high-risk one, it is often not your fault. However, it will be difficult for you to secure a traditional merchant account since you’ll be subjected to extra scrutiny. Also, when you are designated as a high-risk merchant, some processors might refuse to work with you, and if they do, they might require you to have cash reserves or even limit the number of transactions.
When this is the case, rather than deal with extremely high rates and fees, the wise choice would be to opt to work with high-risk merchant account providers.
When Should I Consider A High-Risk Merchant Account?
Once your business is designated as a high risk, it is not the end of the world for you. In fact, it might turn out to be a blessing in disguise. When you don’t want to move from one processor to another only to be turned down, you can work with providers who provide high-risk merchant accounts. Here’s a look at 5 reasons a high-risk merchant account might be a good fit for your business:
- You Work From Home Or Run An Offshore Business
Where do you run your business from? Is your main office at home or overseas? The location of your company’s main headquarter plays a significant role when processors are assessing your business. Therefore, if you work from home or your firm’s main headquarter is abroad, but your primary market is based in the U.S., you might be labeled as a high-risk merchant. This is because the bank or credit card processor won’t be able to dig a lot of information on your business. So, when there isn’t really a way for them to know your company’s inner workings, they designate your business as high risk.
2.High Rate Of Fraud Or Chargeback
It can be quite tricky to be able to control your customers. However, take the initiative to create company policies that prevent customer problems. This is because if your business has a history of experiencing chargebacks, the merchant account provider will deem your business as high risk. A high rate of fraudulent transactions is also a red flag for credit card processors and will lead to a high-risk merchant account. Avoid chargebacks whenever possible and if you can mitigate the issue consider a high-risk merchant account for your business.
3.Your Niche & Marketing Practices
Which industry are you in? Some industries are considered to be riskier than others partly because of questionable legality. For instance, a company in the photography industry can be deemed as high risk from a payment processing partnership perspective. Is your type of business often associated with pyramid schemes and other scams? Or do you utilize marketing practices that walk the line of scams? If so, then a high-risk merchant account might be your only option since to most providers, you will be guilty by association and deemed a high-risk merchant.
Do processors check my credit to determine whether the business is a high-risk? Yes, they do, and you better believe it. While you might be a separate entity from your company, providers will also focus on the owner’s credit to determine whether a business should be categorized as a high-risk. Processors often assume that a business owner with a good credit score will automatically be a more favorable risk. On the other hand, if your credit score is bad or poor, then your next best option is a high risk merchant account.
5.Years In Business
This goes without saying, if your business has had a good run for years in the industry, the more partners it will attract. Therefore, relatively new companies might be categorized as high-risk and would have to consider getting high risk merchant accounts.
Whatever your business, it is imperative that you consider for a moment what it means to be a high-risk merchant and the pros and cons. While some businesses might be on a different stage, where they are not considered as high-risk, being categorized as a high-risk rarely has to do with how you conduct your business or the quality of products and services that you provide. Therefore, you don’t need to pick the first provider that comes your way; you can always find a flexible high risk merchant account provider that will be an excellent fit for your business.