Why Your Business Might Be Considered High-Risk (And What To Do About It)

In the world of merchant processing, not all businesses are created equal. While some businesses are welcomed with open arms by payment processors, others are flagged as “high-risk.” This label can make securing merchant accounts and processing credit card payments a challenging, and sometimes frustrating, endeavor. But understanding why your business might be considered high-risk, and knowing how to mitigate those concerns, is the first step towards securing reliable and affordable payment processing.

So, what exactly makes a business “high-risk” in the eyes of a payment processor? It boils down to the potential for financial loss for the processor due to chargebacks, fraud, or regulatory issues. Essentially, anything that makes your business more likely to generate problems that could impact the payment processor’s bottom line.

Here’s a breakdown of common factors that contribute to a high-risk designation:

1. Industry Type:

Certain industries inherently carry a higher risk profile than others. This is often due to regulatory complexities, higher rates of customer dissatisfaction, or the potential for fraudulent activity. Examples include:

Adult Entertainment: This industry faces regulatory hurdles and a higher likelihood of chargebacks related to customer remorse or unauthorized purchases.

Online Gaming & Gambling: Subject to strict regulations in many jurisdictions, and prone to fraud and disputes.

Travel Agencies & Timeshares: High transaction values and long lead times between purchase and service delivery make them susceptible to cancellations, disputes, and supplier issues.

Nutraceuticals & Supplements: Often face scrutiny regarding product efficacy and marketing claims, leading to chargebacks.

Debt Collection Agencies: Regulated heavily and prone to disputes over debt validity and collection practices.

Subscription-Based Services: Prone to chargebacks if customers forget to cancel their subscriptions or are dissatisfied with the service.

2. High Chargeback Ratio:

Chargebacks are a nightmare for payment processors. A high chargeback ratio (the percentage of transactions disputed by customers) is a major red flag. A ratio exceeding 1% is generally considered problematic and can lead to account termination or significantly higher processing fees. Reasons for high chargebacks include poor customer service, unclear product descriptions, shipping delays, or fraudulent activity.

3. Poor Credit History:

While not always a deal-breaker, a poor credit history, both for the business and the business owner, can raise concerns. It suggests financial instability, which increases the processor’s risk of non-payment or potential bankruptcy.

4. High Transaction Volume:

Surprisingly, a very high transaction volume, particularly when it’s a significant spike from a previous lower volume, can also trigger a high-risk assessment. This is because it increases the potential for large-scale fraud or operational issues that could overwhelm the payment processor’s systems.

5. International Transactions:

Processing payments from multiple countries adds complexity and risk. Different regulations, currency fluctuations, and increased susceptibility to fraud make international businesses more challenging for payment processors.

6. New Business with Limited History:

A brand new business, especially one without a strong track record or proven business plan, is inherently riskier than an established company. Processors have limited data to assess the business’s stability and potential for success.

What to Do If Your Business is Considered High-Risk:

Being labeled high-risk doesn’t mean you’re out of options. Here’s how to navigate the challenges and secure reliable payment processing:

Be Transparent: When applying for a merchant account, be upfront about your business type, potential risks, and any previous issues. Honesty builds trust and demonstrates your commitment to operating with integrity.

Improve Your Business Practices: Proactively address the factors contributing to your high-risk designation. This might involve improving customer service, clarifying product descriptions, streamlining shipping processes, or implementing fraud prevention measures.

Reduce Chargebacks: Implement robust chargeback prevention strategies. This includes using Address Verification System (AVS), Card Verification Value (CVV) codes, and detailed transaction descriptions. Consider tools like those offered by https://authorize.net to help mitigate fraud.

Build a Positive Track Record: Focus on consistently providing excellent service and maintaining a low chargeback ratio. Over time, this will demonstrate your reliability and reduce your risk profile.

Consider High-Risk Payment Processors: Some processors specialize in working with high-risk businesses. They understand the unique challenges you face and offer tailored solutions, although often at higher fees.

Secure a Rolling Reserve: Be prepared to accept a rolling reserve. This means a percentage of your sales will be held back by the processor for a specific period to cover potential chargebacks or losses.

Work with a payment gateway Specializing in High-Risk Businesses: A payment gateway can often integrate with a wider range of processors, potentially giving you more options.

FAQs:

Q: Will a high-risk label always mean significantly higher fees?

A: While higher fees are common, the extent depends on the specific risk factors and the processor. It’s crucial to shop around and compare offers from different providers.

Q: How long will my business be considered high-risk?

A: This varies. Consistently demonstrating responsible business practices and maintaining a low chargeback ratio can gradually improve your risk profile over time.

Q: Can I avoid being labeled high-risk by simply hiding information from the payment processor?

A: No. Dishonesty will likely be discovered and can lead to account termination, legal repercussions, and a severely damaged reputation. Transparency is always the best approach.

Q: What is a “chargeback alert” and how can it help?

A: A chargeback alert system notifies you when a customer initiates a chargeback, giving you the opportunity to resolve the issue directly with the customer before it becomes a formal chargeback. This can significantly reduce your chargeback ratio.

Conclusion:

Being classified as a high-risk business can be challenging, but it doesn’t have to be a roadblock to accepting online payments. By understanding the reasons behind the designation and proactively addressing the underlying issues, you can significantly improve your chances of securing a reliable merchant account. Remember to be transparent, implement robust fraud prevention measures, and build a positive track record.

If you’re struggling to find a payment processor willing to work with your high-risk business, don’t despair. Contact Payminate.com today for expert guidance and assistance in finding the right payment processing solution for your unique needs. We specialize in helping businesses like yours navigate the complexities of the payment processing landscape and secure the tools you need to thrive.