Have you ever wondered what your company would do if it got kicked into the “high risk” merchant category? Or, maybe you’re already there and need advice about the next step to take. Worry not, because there are viable, realistic solutions to the dilemma. You won’t have to close your doors, give up your profit margins, or resort to extreme measures.
There’s an essential business service for companies that are defined as high risk. It’s the merchant account providers who take on these risky merchants and allow them to accept various forms of payments, primarily credit cards. Whoever your credit card processor is, they’ve already decided to give you one of two designations: low risk or high risk.
If you end up in the high category, expect to pay higher fees for most services. Also note that the so-called low-risk designation exists only by default. “Low” simply means “everyone who is not in the high-risk category.”
Those merchants who get slapped with that “high” label often have trouble finding a payment processor, and when they do, the contracts tend to be rather strict and fees are usually noticeably higher. But, there’s a bit of good news: once you are labeled high risk, you have a few distinct advantages.
First, your situation can’t get worse. In other words, there’s no category labeled “super-high risk.” Second, you’ll still be able to operate your company and earn a profit. Some of the world’s largest, best-known sellers are high risk merchants. Finally, you won’t have to lose sleep over every chargeback you get and constantly worry about getting thrown into the high risk category, because you’re already in it.
Face facts. If you run an e-commerce enterprise, you simply must accept plastic from your customers. In the modern world, there’s no getting around that basic truth. But, accepting debit and credit cards means you must sign on with a processor, a payment facilitator to connect you with the credit card networks and financial institutions.
More good news: there are plenty of payment processing companies that are happy to accept high-risk merchants. In fact, a handful actually prefer to work with high-risk clients because it means they can charge higher fees and seldom see their merchant-clients migrate to other processors. It’s necessary to understand that a great many processors want nothing to do with risky merchants. These service-providers are content to deal only with low-risk companies and charge standard fees for the work they do.
What If You Are High Risk?
The three smartest things you can do if you are a high-risk merchant include the following: know what high-risk merchants are and why they’re categorized that way, understand what you must know before you select a processor that deals with high-risk merchants, and finally, learn the truth about chargebacks and why they are a central component of the entire risk problem for everyone.
Nine Characteristics of High-Risk Merchants
Payment processors have their own proprietary methods for determining if merchants are low or high risk. Whichever category you’re in will determine your contract term as well as your fees. However, there’s more to a great payment processing service than fees. When you begin looking for a company that handles high-risk merchants, remember to ask about customer support, security, third-party solutions/integrations, and how they handle chargebacks.
Note that just being in one or more categories won’t automatically get you thrown into the high-risk basket. Payment processors look at the big picture, so the fewer of the following characteristics you have, the better:
- Selling Techniques: The more aggressive the selling technique (like outbound telemarketing or affiliate marketing), the more likely a merchant will be considered risk-prone.
- Industries: Companies whose revenue comes from gambling, adult entertainment, casinos, pharmaceuticals, legal services, credit repair, subscription services, travel, dating services, telemarketing, and many others are one of the telltale signs that a merchant is in an industry that incurs volatile revenue streams.
- Products: Seasonal, digital, software-based, and ticket products are one of the marks of a riskier business model. The concept of seasonal revenue tends to scare some payment processors, most of whom prefer more traditional products like household items, books, office supplies, and apparel.
- Currencies: Accepting more than one kind of currency is a sign of a riskier seller. This is a tough hurdle for anyone who sells outside their home turf, as the economy is becoming more and more global. In fact, selling anything online usually entails accepting two or more forms of national currency. Perhaps it’s not fair, but that’s the way it is.
- Card Transactions: You could notch another point as a risky seller if your average credit card sales amount is in excess of $500. It only makes sense that a few chargebacks or defaulted payments on items above the $500 mark can be a major hassle for payment processors. That’s why they prefer sellers who offer items priced below that amount.
- Sales: When sales volumes soar above the $20,000-per-month mark, merchants are in danger of getting slapped with the high-risk label. This rule, as well as the $500 credit card transaction cutoff point, are why so many large companies have problems remaining in the low-risk category.
- Watch Lists: You’ll have a greater chance of being tagged high-risk is you appear on any of the industry watch-lists for incurring a large number of chargebacks.
- Subscriptions: For various reasons, payment processors are averse to companies that derive most of their income from subscription services. Even so, this kind of selling is one of the fastest growing segments of the e-commerce economy.
- Geographic Considerations: What are the riskier geographic zones from which to sell or in which to operate? There include anyplace outside of the European Union, Australia, the U.S., Japan, and Canada. Payment processors base this determination on historical rates of fraudulent transactions and chargebacks.
Four Things to Know Before You Sign Up
When you go shopping for a payment processing company, and if you fall into the high risk category for merchants, you need to be aware of four key facts.
- There are Advantages: You won’t have to worry as much about chargebacks as you used to. If you’re already high risk, you can’t get tossed into a more punitive category. But, chargebacks will still cost you in terms of lost revenue, so it’s still best to do whatever you can to minimize their occurrence.
- Scammers are a Real Threat: As in any industry, there are scammers out there who prey on high-risk merchants. Only deal with reputable companies who offer legitimate payment processing services. Do your research, read customer reviews, and ask question. Don’t sign up with a scammer.
- Be Ready for Strict Terms and High Fees: For being high risk, you’ll pay higher merchant fees and be subject to stricter terms.
- Understand How Reserves Work: You will quite possibly have to put up a cash reserve. It might be a percentage of your sales or a flat amount held by the payment processor. There are multiple kinds of reserves, so ask questions and shop around for the best deal.
A Word of Caution About Chargebacks
Chargebacks are one of the primary problems for merchants, banks, card issuers, and payment processors. In essence, when consumers demand chargebacks based on illegitimate reasons, everybody loses. By law, several parties are forced to investigate and attempt to resolve a chargeback and the process ends up costing everyone involved, except the consumer who initiated it. If your company experiences chargebacks and is already a high-risk merchant, you stand to lose a significant amount of revenue, even if you have no more worries about being shuttled up to the high-risk category (because you’re already there).
Finding Solutions That Work For Your Company
Millions of merchants are in the high-risk category and still do well, earn profits year after year, and continue to grow. At Metro Payment Technologies, we offer a full range of merchant solutions for companies of all kinds, in every industry. One of our premier services is chargeback handling. If you want to minimize chargebacks and quickly handle the ones that do occur, the Metro Payment Technologies team can meet the challenge. Visit our website and contact us when you’re ready to expand your company’s reach and boost your bottom line.