What is a high risk merchant account?
Payment processors classify certain industries High Risk. All processors consider card-not-present transactions as a risk. For example Internet and over the phone transactions. Well over 50% of all fraud transactions occur with this payment method. The High Risk classification is also typically associated with the industry type and the amount of disputes and chargebacks historically encountered during the normal course of business. For example, a business related to travel can be considered high risk due to the amount of cancellations that can occur. Travel related businesses are susceptible to outside factors such as the weather or changes in the customer plans. For this reason the merchant may receive a higher than normal amount of refunds and chargeback’s, and thus be considered a high risk business. For high risk merchants it is important to keep on top of chargebacks and just not let them happen.
If you are running an online business then it’s really a topic to worry about your payment processor. Payment processor has three categories of businesses and the most difficult category is high risk business category other two are a normal business which works with no problems and another one is prohibited businesses, like online casinos and drugs. iPayTotal delivers payment solutions and products to help grow your business. Processing thousands of credit and debit transactions per day, we make the process of opening a merchant account easy and affordable.Our high risk merchant accounts allow you to accept all major credit and debit cards. Our MOTO payment gateway allows accepting transactions on phone.A business can be classified as high risk for many reasons, besides their industry type. The business owner or principal applying for the merchant account may have a low credit score. The business may be brand new and have no history of previous credit card processing. The business may be competing in a new or unproven industry. The company could be selling to customers in a different country than where it is based. The average ticket or sale price may be very high, such as over $500 or even $10,000. The business owner might have had their previous credit card processing cancelled and placed on the MATCH list for receiving too many chargebacks. The timeframe for delivery of the product or service may be too far in the future from the original credit card transaction. This is often true in the travel industry, or for businesses that make customized products or services.
So what is a High Risk Merchant Account?
Merchants are usually considered high risk for one of the following reasons:
- Worst-case scenario of taking a loss on your account, due to your personal credit or company finanacials not able to support the sales volume that you are applying for
- Your service or product has a longer chargeback liability period. If you are offering annual memberships, customers have 18 months to issue a chargeback (6 months from the end of the service date)
- You are in an industry that has a history of high-chargebacks. The bank feels they will spend too many resources managing your account, and eventually have to turn you off regardless if/when you exceed chargeback thresholds
- The account has a “reputational” risk, such as the adult industry
- If you are on the TMF or MATCH list
What makes a business High Risk?
The top reasons as to why do payment processor drops business.
- Nature of the product- Often you see that online deliverables, software, and digital products are considered or labeled high risk.
Reason: The simple reason for that is the missing of tracking number for shipping and no confirmation for delivery, and if there is any confirmation then also it is not easy. It’s really too difficult If the delivery is linked in a confirmation email or a software product key with any products.
- Chargebacks and disputes- The rate of chargebacks and disputes is also responsible for making online businesses high-risk. Many online and software products are higher rates of chargebacks, and the reason for that is the availability of services in all over the world ( globally) and also these type of products are easier to scam. Chargebacks are the primary reason for companies to drop a business and it’s really a matter of maintaining a relationship with credit card companies and banks but there are some companies who don’t want to maintain their relationship with financial institutions, so they easily trim their relation with their clients. If the business has a higher rate of chargebacks then payment processor companies finally after review terminates their account.
- Financial damage – If a business has so many chargebacks then they don’t have another option and then they flee with all of the money they left with and by that payment Processor Company left with no option and whatever the chargebacks they have to pay with their own pocket.
- Fraud – This is the foremost reason to suspend the merchant account. So many merchants committed the fraud in different forms and shapes like not delivering the actual product or services to the customers or misusing the credit card details, overcharging for the services etc.
Keep one thing always in your mind that your processor really doesn’t want to suspend your account because this is the business of the processor and the way to earn money. Just work with them and try to resolve the issue because processor also wants to resolve your issues before they deteriorate the point where the processor is forced to take an action you might not like.
How to Avoid a Cash-Flow Crisis?
The best steps to avoid cash-flow and to prevent holds, freezes, or terminations:
- Pick up the right type of processor – There is a different type of agreement for different merchants as a different payment processor. What you need to know if there are two different types of agreements. Direct agreements and Third-party agreements. One another type of agreement which a merchant wants in their special demand is high-risk merchant account.
- Direct Agreements – Direct agreements are the traditional merchant accounts that are unique and solely in your name. Large as well as small both types of companies are under it. Merchant accounts are really best for the consistent businesses because it is the cost-effective option.
- Third Party Processing – Single large merchant account for the lump of the individual user into it, that’s why they called “aggregator” also. Their tendencies are to holds or terminations by the merchants. They have terms of services that allow them to holds or terminations at any time, for any reason or may be no reason.
- High Risk Merchant Accounts – This is the breed of the direct agreement. Processors who provide standard merchant account also provide high-risk merchant account and some only deal in high-risk merchant accounts. Your business model or industry makes you high-risk and high-risk is the business for which you more likely need a merchant accounts because that gives you a stability.
- Set Expectations and Stick to Them – As you know that making so much is really a problem as a merchant. When you apply for a traditional merchant account, then you also provide all the information about your expected volume and transaction size and provide use this information as a baseline to identify suspicious activity.
If you are applying with third-party processor then also you need to take care that any processor doesn’t get suspicious that when you go from processing $2000 per month on average to double or triple that in space of only 30 days. Clear communication is always good to maintain your account.
- Sell What You said You’d Sell – Fraud and misrepresenting your business or service will lead your account to termination so, it’s an advice not to do that because it will lead high rate of chargebacks.
If your business has been classified as high risk then you do not need to be alarmed. For over 18 years we have maintained a positive working relationship with the most capable and reliable processors in the industry. We will advise and guide you to a solution that fits your unique requirements. High Risk merchant accounts come under a higher degree of scrutiny. Processing banks may require background information or business financials. An executive summary would be advised to detail your businesses game plan. Keep in mind, some banks may ask for a higher processing rate because they are taking on more risk. Banks may even ask for a reserve on your credit card processing. The good news is, once you have built up a positive processing history, staying below the allowable 1% threshold in disputes and Chargebacks with your merchant account your business processing will not be interrupted. If you already have a positive history in credit card processing, the banks will take this into account. A positive processing history would include six months to a year of zero to a low amount of chargebacks and refunds you may wish to investigate why this may be happening and implement policy’s to bring your processing into compliance.
To know more just fill out our short form and we’ll get back to you. Our highly experienced and well-educated team, with more than a decade of experience in the industry, will always ready to help in giving you payment solutions to start your new business with safe and secure policies and also to expand you an existing business. IPAYTOTAL is here not only to provide you a merchant account but also to assist you and help you anytime (24/7).