It is no secret that high risk merchants of many industries often have trouble applying to get a merchant account. To some banks, the risk is not worth the reward. Other banks and payment processors – such as Instabill – feel the opposite.
Embracing high risk industries also means embracing the byproducts that come with them. One of those byproducts is the fraudulent, misguided attempt to get a merchant account under the guise of a different industry. Particularly over the last 2-3 years, our merchant account managers are seeing more instances of this.
Why high risk merchants hide behind industries with less risk
In high risk merchant account services, the credit card processing rates and fees are slightly higher than medium and low risk merchant accounts — simply because acquiring banks need to protect themselves from the risk. High risk payment service providers are often the second and third choice/chance for merchants and thus, see more attempts of fraud.
We see it with certain industries such as tech support, online gaming, gambling and pharmaceuticals — all industries for which it can be especially difficult to get a merchant account. The reason is because these high risk merchants don’t want to pay the high risk rates that these industries often come with the industry.
Several stages of underwriting (most merchants don’t know this)
The merchant account underwriting process begins as soon as we receive one of our lead forms, and/or when we’re in discussion with the merchant about the possible solutions we can offer. Underwriting continues, not only by us, but by our acquiring banking partners long after merchants begin processing transactions.
We’ve been attracting, vetting and processing for high risk merchants for more than 20 years. The chances of a fraudulent merchant getting through our thorough underwriting practices are remote in the extreme.
High risk merchants trying to get a merchant account: our stories
In industry terms, it’s called transaction laundering. We see it most often with tech support.
Several years ago we were in the final onboarding stages with a merchant that sold industry-sized dumpsters — the kind used in home renovations and demolition. By all accounts, his business was legitimate: he had good processing history, low chargebacks, documents in order and capital in the bank. When we contacted the merchant on a minor matter, however, a female answered the phone with the greeting indicating they were a tech support business. Immediately, we confronted the merchant, who claimed he owned two businesses — the dumpster business and a tech support service.
One thing we ask of our merchants and prospects is transparency, which our dumpster merchant failed to provide. Thus, we ended the relationship on the spot — before he began processing transactions.
If there is one thing we’ve noticed in these instances, it’s that the websites for such have gotten remarkably more sophisticated, cleaner and organized. When vetting potential fraudsters, usually the fraudulent merchant’s website is flawed with broken links, missing photos and the odd placement of text.
From what we’ve seen recently, fraudulent websites have become more sophisticated, so we look for other red flags.
Roughly two years ago, we were approached by an online merchant who sold padded and drawstring backpacks. His website appeared legitimate and the links we checked worked. He had a contact form and a return policy too. What we couldn’t get passed, however, was the outrageous cost of these simple backpacks when anyone could purchase them at any retailer for the fraction of what the merchant was charging.
The merchant defended his prices. The feeling, however, that his website may be a front for something illegal was too overwhelming for us. We passed on his merchant account. We couldn’t help but notice that, within a month, his website was offline.
Along with online dumpster services, we’ve had tech support merchants in the past pose under the business guise of online furniture. Lately we’ve been approached by tech support merchants guilty of attempting (lamely) to pass their businesses off as website design and/or SEO.
Once we vet the merchant’s website, receive the appropriate KYC documents and ask the pertinent questions, we have rock-solid understanding of the merchant’s business model. Website design is a completely different industry than tech support.
The question — and red flag — in both these cases was this: Why does a merchant selling furniture online and a website design merchant need a high risk merchant account? They are both seemingly low risk businesses (website design is medium at best), to which that many banks would offer merchant services.
High risk merchant accounts: transparency needed
The way to get a merchant account means the merchant must be transparent with the payment processor and acquiring bank. Anything less than complete transparency means all parties gain nothing. High risk payment processing options can be elusive, but Instabill merchant account managers will detail the possibilities for you.
Have a 10-minute conversation with a merchant account expert today at 1-800-530-2444.