Are you a ‘High Risk’ merchant?
Most businesses nowadays need to be able to accept card payments, whether you’re an online business or bricks and mortar. Finding a good and reliable merchant account provider to process those card transactions is still proving to be a challenge for any business, but it can be even harder if you’re a high risk merchant
What is a High Risk Merchant Account?
More and more companies are applying for a High Risk Merchant Account due to the nature of their business. Let’s look at the most common reasons why accounts can be high risk and what are the issues associated with opening this type of account.
Merchants are usually considered high risk for one of the following reasons:
- Personal credit or company financials not able to support the sales volume that you are applying for
- Your service or product has a longer chargeback liability period.
- 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
- The business has been black listed by credit card companies
- Products or services that the business sales are deemed to be prohibited by some but not all banks
- The business sells future deliverable products, like a hotel reservation, tickets to an event, etc
- Memberships with automated recurring billing
Every merchant acquirer has its own set of criteria for deciding whether a business is classified as high-risk. Thus, a business might be deemed high-risk by one acquirer, but not by another. Just a few examples of businesses that are normally classified as high-risk include those in the adult entertainment industry, e-cigarette and vape shops, online gambling sites, lottery, debt collection, online dating and many more. Furniture stores are also sometimes classified as high-risk due to their high sales transactions and the business taking payment for a product that may be delivered anything up to 12 weeks, in which time the business could go bust, which could therefore lead consumers to process chargebacks and claims from their card issuers.
Typical High-Risk Industries
Industries often considered to be ‘high-risk’ include, amongst others:
- tobacco and electronic cigarettes
- Cryptocurrencies and ICO’s
- drugs and drug products (including prescriptions)
- airline, travel, tourism and lodging
- debt management and collection agencies
- PPI claims management companies
- payday loans
- Cannabis seeds
- CBD Oil
- foreign exchange (Forex)
- pyramid selling
- dating and escort services
- adult entertainment
- timeshares and holiday clubs
- tech support
- money-making products and services
- monthly memberships and subscription services
- advertising services
- online auctions
- events and tickets
- penny auctions
- file sharing
- affiliate marketing
If your classed as ‘High Risk’,quite frankly, it makes getting a merchant account a lot harder and more expensive. Despite the intense competition within the merchant services industry, getting approved for a merchant account is never guaranteed. Providers have to balance the risk presented by a merchant applying for an account against the potential profit to be made from the account if it is approved. In most cases, they err on the conservative side of things, meaning high-risk merchants simply aren’t approved for an account.
Other providers will approve you, but you won’t get nearly as good a deal as a non-high-risk merchant would receive. Instead, you’ll pay higher processing rates (up to 15% per transaction) and account fees, and you’ll usually be stuck with a long-term contract (typically 3 years), an early termination fee, extended settlement period and high monthly fees. In some cases, you might also be required to put up a rolling reserve to get approved
If a merchant is considered high risk, they will have a more difficult time obtaining a merchant account, but We Tranxact Ltd has the experience and the relationships in place to assist you!