High-Risk Payment Processing: What Businesses Need to Know
Sometimes, even a business with perfect credit and no blemishes in its financial history can be classified as “high risk” for credit card processing, which can cause some payment processors to refuse to offer their services, or may affect the rates that the business is charged. This is why it’s essential to know what high risk for credit card processing means for businesses, so they can bring this knowledge to the table when comparing merchant account services. Some online merchant account providers are willing to work with businesses that are high risk, particularly if they are high-volume merchants. The business should know ahead of time, however, that this may be an issue. In that way, they can either mitigate the risk as best they can or find a provider willing to work with them.
What is High-Risk Credit Card Processing?
A business is considered “high risk” for credit card processing when the transactions that occur for its products and services have a statistically higher likelihood of being subject to a chargeback. In other words, if transactions are likely to be disputed by the cardholder, a payment processor has to take a greater risk, because the processor must pay that money back to the cardholder, with no guarantee they will necessarily be able to recoup that payment from the merchant.
The issue of which types of businesses are classified as high risk follows a certain logic. For example, industries where people place money down for opportunities rather than the traditional purchase of a product, or those where upcharges related to insurance premiums or deductibles are involved, are typically high risk. These are industries that have an increased likelihood of cardholder’s initiating a dispute of a transaction.
Such businesses include (but are not limited to) healthcare/pharmaceuticals, timeshares, and and gaming. A business in one of these industries or with a similar model may be classified as high risk for credit card processing.
How can a Business Mitigate Risk?
The result of being high risk for credit card processing, in addition to possibly being refused services, is the higher rates that some payment processors may charge to process transactions for a high-risk merchant.
One solution that won’t work for every merchant is to limit the products sold. For example, merchants selling any kind of weapons will generally be classified as “high risk.” Now, for a business that specializes exclusively in selling weapons, there isn’t much that can be done about that. But for a merchant that specializes in, say, metalworking, who sells dozens or even hundreds of different metal products, including just a few knives, removing the knives from the merchant’s inventory may be all that is needed to have the business no longer be classified as high risk.
If removing some items from inventory in this way is not an option, or if it is impractical or just not worth it, then seeking out an online merchant account provider who works with high-risk businesses can solve the problem.Even then, the cost of this risk can be reduced indirectly.
One option to consider is offering eCheck payment services in place of credit card or debit card transactions. eChecks go through a much less rigorous approval process, and are available to virtually any kind of business.
The Takeaway
Businesses in any high-risk industry can benefit from being aware of their status when seeking to conduct transactions with an online merchant account provider or with a payment processor. Some ways to reduce the cost associated with the issue are to 1) eliminate offerings that are causing the business to be classified as high-risk; 2) seeking out a merchant account provider that specializes in servicing high risk businesses; and/or considering eCheck services instead of credit card payment services.
Visit Charge.com or call (888) 924-2743 to see options for payment products and services for merchants, no matter the risk level of their business or industry.
