High-risk credit card processing is a term used to describe business and merchant accounts that banks are not willing to do business with. Merchant accounts and businesses can be considered high risk for different reasons. Irrespective of the cause, being classified as one is detrimental to business growth. Fortunately, some high risk solutions can help your business survive.
High Risk Businesses
Businesses end up on the high-risk list for several reasons. Some of them are:
- No credit history: It is common for new businesses.
- Owners credit score: A low credit score by the business owner automatically qualifies the business as high risk.
- Operating in an unproven industry: It can be new or simply unstable.
- Selling to customers overseas: Customers who do not recognize the charges always demand chargebacks.
- Customized services: They include travel industry, customized furniture’s, jewelry and such businesses. The time frame for delivering these products is often long hence high uncertainty levels
- The MATCH list: It is equivalent to a phone’s blacklist. The business ends up on this list due to a high number of chargebacks on previous credit card transactions.
High Risk Merchant Accounts
Merchant accounts end up in the high-risk category due to two factors: the number of chargebacks and the nature of the industry. A large number of chargebacks in the travel industry, for example, leads to a high number of cancellations. The industry is, therefore, considered high risk. Again, it is significantly affected by external factors such as changes in the customer’s plan and weather conditions.
There are industries which are notorious for high chargebacks. The Adult industry is a perfect example. Financial institutions will impose punitive charges on the merchant accounts. Some just refuse to be part of it.
How to Prevent Being Classified as High Risk
Yes, it is possible to prevent your business or merchant account from ending up in the high-risk category. As an entrepreneur, learn how to hold your credit score high.
However, it takes a little more effort for merchant accounts. Here are some high-risk preventive solutions to adopt.
For online transactions with high chargebacks such as the adult industry, maintain records of each customer’s visits and logs. The record may indicate the time and the IP address. Chargebacks on face to face transactions can be avoided by having signatures on the credit card receipt.
Surviving as a High Risk Business
Now, sometimes being classified as high risk is inevitable. That is why aggregate or third-party merchant accounts exist. Credit card processors bring together several low-risk and high-risk businesses into one account. The risk levels cancel out making the banks happy. Your high-risk business can now take credit cards.
The downside of this high-risk solution is that there is a possibility of incurring abusive charges. So choose a reputable processor.