High Risk Merchant Accounts

What Do We Mean By High-Risk Merchants?

Not sure if your business is considered “high risk” by merchant banks? Answer these questions to help you identify if your business is high risk:

• Has your business been terminated for credit card processing in the past?
• Have you tried to apply to different processors with no success?
• Is your business prone to receiving chargebacks?
• Do you have a very high average ticket or future delivery on your customer orders?

If you’ve answered yes to one or more of these questions, then your business falls into the designation of a high-risk industry. Categorization can sometimes be determined by your industry type, even if you have a proven track record of running a clean business. A business that has been terminated by a credit card processor or a business that has been put on the TMF/MATCH list, is also considered very high risk to banks .   If the business is owned by someone with low credit scores or poor personal credit, this will also lead to the business automatically being labeled as high risk.

Which Industries Are Considered High Risk?

Certain business will be considered high risk due to a lack of history or track record of payment processing. But the lion’s share of high-risk businesses is believed to be so because their respective industries have developed a bad reputation with regulatory agencies and card brands or because they typically are prone to high chargeback ratios. Some industries that are classified as high risk are Cannabis related products, health and beauty products, telemedicine, travel related services, gambling, antiques and collectibles, credit repair, tech support, dating, adult, pawn shops, furniture sales, firearms and ammunition, liquor, pet shops, computer hardware, and moving companies.

What is the process for a High- Risk Merchant to apply for and acquire a Merchant Processing Account?

One of the most frequently asked questions with a seemingly direct answer: First and foremost, it’s very important to work with a merchant account provider that has years of experience specializing in high-risk payment processing. They will provide the assistance and guidance needed to complete your application. You will then need to gather all the appropriate supporting documents and submit them to the processor. At that point your high risk specialist can determine which banks are the right fit for your business and will offer you long term processing sustainability. Once the bank has approved you, your payment gateway will be setup and you can start accepting payments. For traditional businesses, this might sound like a piece of cake. Because most banks and payment processors are hesitant to provide processing services to high-risk merchants, high-risk merchants will require someone who specializes in high-risk to deal with your business, namely a high-risk merchant account provider.

How to Locate One?

Say you’re the owner of some cafés around the city. You will not encounter any problems securing credit card processing from a processor or a bank. Unfortunately, this is not the case for high-risk businesses.

If you were to search for a merchant account for your high-risk business, most financial institutions would balk at the thought of chargeback and/or regulatory risks. Thus, there is very little interest in supporting high-risk businesses and approving high-risk merchant accounts for businesses classified as high-risk.

When placing a call to a merchant account provider, your first question should be whether they offer merchant accounts to businesses that are classified as high-risk. Be very careful when choosing the right processors because the salespeople often says yes, but you discover at a later stage, that their risk and underwriting department does not actually want to deal with high-risk merchants.

Is There a Way to Increase the Processing Volume Limit?

The majority of high-risk merchants want their sales to exceed $100,000 a month, and the merchant account provider strives towards the same goal. Unfortunately, your initial merchant account will normally be capped between $25,000 and $50,000.

Thus, the big question here is – how does one raise their cap? It all comes down to one simple answer – time. When you look at the big picture, a merchant account is nothing more than a line of credit that extends all the way from the processor to the business. Like any other business loan, getting a bigger credit limit will depend on the track record of the company.

Usually, a business can submit a request to get their account re-reviewed for a bigger limit after three to six months of smooth clean processing. Try to maintain a steady volume, a low chargeback ratio, and consistent transaction sizes.

Tips For Completing a Successful Merchant Account Application

Every credit card processor has an underwriter whose role is to verify the level of risk it will take on. This prevents the credit card processor from experiencing losses on a specific account. These losses can occur either because of uncollected chargebacks and fees or regulatory fines.

The underwriter needs to determine if your business will have excessive chargebacks and if you will cover all fees and other amounts due to the processor on a monthly basis. The underwriter also looks after the regulatory side, which means they determine if the credit card processor is exposing itself to fines from card brands, the government, or a sponsor bank for allowing payments from merchants that are participating in nefarious or fraudulent activities.

It’s a good idea for businesses to keep substantial balances of cash in your business’ bank account and act as if you have a trustworthy, well-planned business model. Additionally, the ownership of your business should seem competent and stable to get the application approved by the underwriter.

Credit Card Processing Strategies You Need to Remember

Being considered a high-risk business is not all doom and gloom; there will be a few credit card processors still interested in working with you. Unfortunately, the terms and conditions might not be as favorable as you would hope for. Still, if you want to locate high-risk credit card processors, there are some techniques to know.

• Be Transparent: Trying to outsmart the credit card processor by selectively disclosing information about the business will not end well for you. An audit is all it takes for them to determine whether your business is high risk. It is ALWAYS better to be upfront and completely honest. If your application is denied, continue looking for a processor who’ll agree to work with you. It might take some time, but they are out there.
• Always Have Capital Resources Ready: Submit proof that you have a viable business with enough operating capital and assets. This proof ranges from inventory, equipment, machinery, and tools used to produce income for your business. Productive assets give underwriters a compelling reason to offer payment processing service as it’s a sign your business has the funds required to handle financial losses.
• Offer Up Your Past Processing History: Don’t have capital resources ready? Then you must disclose your past processing history to the credit card processor so they can see how payments have been processed previously. Even if your business was dropped by some low-risk processor, it’s worth showing your past processing details so the new processor knows your account is not associated with anything illegal and you complied with the rules and regulations.
• Don’t Exceed Preset Processing Limits: There exists a preset limit on the transaction amounts and monthly volume for every high-risk business and exceeding that limit may attract a penalty or termination of the account. It is best to ask right off the bat whether the processor provides unlimited transaction volume and can assist you in scaling accordingly.
• Prepare Yourself Mentally for the Worst: Some businesses have more than one high-risk merchant account because there’s no telling when new underwriting guidelines might crop up and cause the termination of your account. Therefore, if one processor drops you, you can still turn to another merchant account for processing the credit cards. You do not want to have “all your eggs in one basket.”
• Start Negotiations Every Quarter: You might think that not having any past processing history is good, but it actually makes your business a riskier proposition for credit card processors. The terms they offer will likely be restrictive and pricey. But offering them three months of good history to review and analyze the application can help you renegotiate rates and other terms of the contract. Moreover, if your submitted application was rejected by a processor, it could be approved at a later time once three months of statements are provided.

How Does PayDiverse Serve You?

PayDiverse supports numerous high-risk merchants, from large-scale businesses to small startups by providing comprehensive credit card processing services. All it takes is for the business to complete the online application, upload the appropriate support documents, and digitally sign the application(s). Once approved, we will set up your payment gateway and chargeback management tools, ensuring that your business is setup to process securely without having to worry about losing your ability to process payments.

If the thought of being labeled a high-risk merchant because of chargebacks or the nature of items you sell keeps you awake at night, know that we can assist you. Our expert processing advisors can analyze your situation and recommend a strategy for applying and getting approval for merchant accounts. Post merchant account approval, PayDiverse will assist you in implementing a chargeback prevention system to help your business stay protected against chargebacks, fraud and all unexpected hurdles that come along the way.