For businesses operating in industries deemed "high-risk" by financial institutions, securing a merchant account and streamlining payment processing can feel like navigating a maze.
A large number of commonly used industries are on these ‘high risk’ lists, including:
· Travel
· Timeshares
· CBD
· Nutritionals
· Firearms and Ammo
· Contractors
· Telephone sales
· Home Improvement
· Future delivery of product or services
· Credit repair services
· Business coaching
· IT Services
· Large volume or large transaction size.
If not prepared they can face an uphill battle in adequately accepting credit card payments. Or, getting approved but not for the amount needed which causes issues and provides for no growth in the business.
Understanding the High-Risk Label
The "high-risk" classification isn't a badge of dishonor; it's a risk assessment made by banks and payment processors. Factors like high chargeback rates, frequent customer dissatisfaction, or belonging to an inherently risky industry (think adult entertainment or cryptocurrency) can all trigger this designation.
The reasoning is due to the payment processors perceived potential for fraud, chargebacks, or financial instability. Also the history of the ‘industry’ as a whole and how previous merchants have handled issues plays a major factor in getting partially approved or approved for the long term.
The bank/financial institution backing the payment processor has an appetite for certain types of businesses, and high risk or some high risk may not be on their plate. So, finding the right payment partner is key to long term payment acceptance success.
Challenges Faced by High-Risk Businesses
Difficulty Obtaining a Merchant Account: Traditional banks are often hesitant to offer accounts to high-risk businesses, leaving them scrambling for alternative providers.
Higher Processing Fees: To offset the perceived risk, high-risk merchants often face significantly higher fees per transaction compared to low-risk counterparts.
Strict Underwriting Requirements: The application process for a merchant account can be rigorous, demanding detailed financial records and business plans.
Increased Scrutiny: Regulatory bodies may pay closer attention to high-risk businesses, requiring stricter compliance measures.
Deposits or Reserves: Businesses must agree for the processor to hold back a percent, 10% up to 50% of each transaction until a reserve equal to the monthly volume is achieved.
Solutions for High-Risk Merchants
Partnering with a High-Risk Payment Processor: Specialized providers understand the unique needs of high-risk businesses and offer tailored solutions.
Prioritizing Fraud Prevention: Implementing robust security measures like fraud detection tools and PCI compliance demonstrates a commitment to responsible transactions.
Maintaining a Pristine Chargeback Ratio: A low chargeback rate (typically below 1%) builds trust with processors and reduces fees.
Building a Strong Business Case: A well-defined business plan and transparent financial records go a long way in establishing credibility.
Industry-Specific Solutions
High-risk payment processors often cater to specific industries. For instance, a travel agency in this category might seek a provider that offers features like:
High-Volume Processing: Accommodating peak season surges in transactions.
Advanced Fraud Prevention: Mitigating risks associated with online bookings.
Global Payment Acceptance: Processing payments securely in various currencies including cryptocurrencies and even ACH Checking account drafts.
Operating in a high-risk industry doesn't have to be a barrier to secure payment processing. By understanding the challenges, implementing the right solutions, and partnering with a specialized provider, high-risk businesses can navigate the maze and achieve financial success.
28 years helping businesses of all kinds with payment acceptance provides all our clients the peace of mind that we can help in all situations or product types.
Are you having issues with your payment processor holding funds, asking for reserves, or shutting your payment acceptance off? Call us, let’s talk about it!
Ken Givens
Want to set up time to talk?
512-848-1069
888-995-3995
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