High Risk Merchant Accounts

Is it Negative That My Business is Considered High-Risk?

It is crucial to understand that the term “high-risk” is not a reflection upon you or your business. It is merely a catch-all term that card associations use to identify business models and merchant types that have historically had their share of challenges. It is essential to know that most card-not-present (CNP) business models fall into this camp. In other words, any time a payment is received without face-to-face interaction, the risk is more significant and, therefore, your chances of being deemed high-risk will have increased.

When you’re deemed high risk, it means your associated bank has to take higher risks with your business. Essentially, the merchant will receive payment for sales that occur on their website before the consumer receives their statement and pays their bill. Therefore, merchant processing banks are essentially extending credit—paying the merchant before funds are exchanged, making them subject to the potential refunds, disputes, and chargebacks from a customer. Therefore, when it comes to higher-risk transactions, the bank will want to make sure their revenue opportunity matches their risk.

There are also higher rates and fees for credit card processing for high-risk businesses because of the specialized nature of the services provided. A relatively small number of banks offer high-risk merchant services. However, some companies can simplify this process for you, as we will discuss shortly.

How Do I Know if I Need a High-Risk Merchant Account?

First of all, you must know if you require a high-risk merchant account as it will have a significant effect on your business. If you discover that you are a high-risk merchant, it is essential to your business’ success that you work with a banking partner who understands your business’ unique challenges. Although some well-known companies like Stripe, Square, and Paypal do not fully support high risk industries, companies like L3 have solutions tailored to individual, high risk merchants.

What is High-Risk Payment Processing?

When you look for a high-risk payment processor, it is integral to understand what makes them different from a regular credit card processor. As the risk is different to standard merchants, additional sophisticated processes are implemented for high-risk merchants. One of the primary benefits of working with these processors is the simple fact that they are willing to accept the increased risk that comes with these industries and merchant types.

A company like L3 helps its merchants manage risk and works to ensure that their merchant accounts remain in good standing. Although they have limited control, they work with their merchants on best practices to help manage the relationship with the payment processor, navigating any issues that arise due to high chargebacks or incidents of fraud. It does this with long-term thinking in mind to ensure it remains operational overtime.

How Do I Get Approved for a High-Risk Merchant Account?

There is no guarantee that you will get approved for a high-risk merchant account. However, your first port of call is to highlight the best features of your business. If you have previous processing history, most banks will wish to review this first. If not, you should write a business plan with information about the individuals involved in the business and their experience, what the industry is, your plan for generating sales, how you will address market challenges, what sets you apart, and anything else you can show the merchant bank that you are serious about your business.

Be sure not to get involved with companies that sell instant approval merchant accounts as they can be detrimental to financial success.

What if My Business is a Card-Not-Present Business?

Generally, the rule of thumb is that CNP businesses are considered high-risk at first glance unless they are selling a ‘standard’ physical product like books or t-shirts. As listed in the table above, more specialized physical products are more likely to be considered high-risk.

Once an individual merchant is reviewed further, a generally considered high-risk model like online dating may be deemed low risk. The primary factor for this is whether the merchant has previous processing history that shows low chargeback ratios.

Why are Certain MCC Codes High Risk?

Specific MCC codes are designated as high risk due to their history of performing higher fraud rates and chargeback ratios. These industries and billing models are already determined by credit card schemes to be high-risk before the merchant bank evaluates them.