If you have shopped for a merchant account, you may have seen that some businesses are denied accounts due to high risk. Merchant services providers assume a certain amount of risk with each company they work with. In many industries, the risk is fairly low. However, companies in some fields may need to use special, high risk merchant accounts to be able to accept credit cards.
How Merchant Providers Determine Risk
Risk is typically determined on a case-by-case basis. Many organizations have proprietary formulas for evaluating risks. However, there are many factors, so it is difficult to predict how a provider many evaluate your risk level. Nonetheless, there are some factors that you can predict:
- High Chargeback Rate: If you are in a field that has a lot of chargebacks, it is likely you will be considered high risk. This is true for outright fraud as well.
- Offshore Businesses: Businesses that are located overseas but primarily do business in America may be considered high risk. This can vary depending on where you are located.
- Bad Personal Credit: Business owners with poor personal credit are more likely to be flagged as high risk. This is truer for small businesses with only one or a few owners.
- Risky Products and Services: Some lines of business are consistently riskier than others. For example, selling pornography or drug paraphernalia may be legal, but it is in a grayer area than most businesses.
- High-Value Sales: If you are selling products that cost $5 each, the downside of a chargeback is minimal. However, if you are consistently selling something that costs $10,000, the downside is much greater. This may get your business flagged as high risk.
- High-Volume Sales: Some businesses have unusually high volumes of sales with thin margins. This can be another reason for getting flagged as a high-risk business.
These factors are evaluated in the underwriting process. Some merchant services providers will refuse to work with you. Others, including Instabill, have special accounts intended for high risk businesses. Working with an experienced provider can help you make the most of your merchant account even in the riskiest industry.
Business Categories That Are Considered High Risk
There are many business categories that may be considered high risk. As mentioned above, the determination is made on a case-by-case basis. Some businesses may be able to receive a normal merchant account. However, some industries result in automatic flagging. These are a few of the industries that often need high-risk accounts.
- Adult Entertainment
- Airline Tickets
- Binary Options
- Cash Advances
- Debt Consolidation
- Drug and Tobacco Paraphernalia
- Extended Warranties
- Foreign Exchange Trading
- Loan Services
- Multilevel Marketing
- Online Dating
- Penny Auctions
- Social Gaming
- Tech Support
- Travel Agencies
As you may notice, many of these industries involve either high-value purchases or customers that are likely to want returns. For example, airline tickets are both high cost and are bought by people who may want to do chargebacks if they miss a flight.
What To Expect as a High Risk Merchant
Having a high risk merchant account typically means that you will need to go through a more rigorous underwriting process. The acquiring banks may request additional “know your customer” documents and have tighter expectations. Many banks only accept certain industries. Additionally, some impose volume caps and set other restrictions such as chargeback prevention schema.
Many acquiring banks and credit card issuers are more leery of high-risk businesses than they have been in the past. This can make it challenging to find the right account. However, there are still providers, such as Instabill, who strive to make merchant services as helpful as possible even in relatively risky businesses.
Finding the Right High Risk Account provider
One of the key challenges as a high-risk business is that the acquiring banks can be harder to work with. Fortunately, Instabill works with more banks including domestic, international and offshore partners to make it easier for you to get approved. Additionally, all our acquiring banks adhere to the guidelines set by the credit card issuers. That means you are less likely to get trouble from Visa, MasterCard or American Express.
Furthermore, we provide fraud protection tools including SSL encryption, PCI DSS compliant software and 3D secure processing. Not only does that help you keep your business safe, but it will also make your banking partner feel more secure. When everyone in the payment processing chain feels good about the arrangement, there will be fewer bumps in the road.
We provide multi-currency processing, so you can accept more payment types. Along with our live customer support, you can be confident you will have the tools and services you need to make your high-risk business successful.
Getting set up with payment processing in a high-risk industry can be a challenge. However, it is easier with the right partner in your corner. Instabill is here to be your payment partner.