What Is High-Risk Processing?

For any business that wants to survive and grow, an online merchant account is essential. Offering online services is now the norm, with credit card and debit card payments outweighing cash payments in a large and growing number of industries. Some who had feared closing during the 2020 COVID-19 lockdown have discovered that selling online with a credit card merchant account has allowed their business not just to get by, but to thrive or even expand in spite of an otherwise challenging economic climate.

With virtual purchases now emphasized, businesses in industries that are classified as “high-risk” industries are feeling the heat more than most. If your business is in such an industry, or you’re worried about risk level and want to be informed and prepared, then it’s worthwhile to learn about what businesses can do to mitigate their risk.

The importance of online merchant accounts

The reason this issue is important is that online merchant accounts are central to almost any modern business’s profitability. These accounts give businesses the ability to accept customers’ credit and debit cards, ACH transfers. Some processors offer businesses the ability to accept additional forms of payment, such as eChecks or cryptocurrency. Many merchant account providers also provide hardware and software for businesses.

What is high-risk processing?

When a credit card transaction occurs, it is subject to being disputed by the cardholder, which is called a “chargeback.” If the chargeback is successful, then the merchant must refund some or all of the cardholder’s payment. But what happens if the merchant cannot or will not pay? In that case, the payment processor that conducted the transaction is on the hook for the full cost of the chargeback. This means that businesses in industries whose customers are more likely to initiate a chargeback represent a major business risk to them, which the processor must manage in order to continue operating.

This risk level is not measured consistently. Each processor defines it based on its own criteria. However, certain industries are at naturally more risk for credit card processing than others. Gambling, timeshares, healthcare, pharmaceuticals, weapons, and related industries are good examples of industries that are typically considered high-risk processing businesses.

What businesses can do

If a business is in one of those industries or knows they are likely to be considered high-risk processing businesses, they should consider how to mitigate this risk.

While not always practical, one option is to stop offering products that are in a prohibited category. For example, a metalworking company might sell hundreds of products, such as tools, furniture, belt buckles, and so on. Nestled among this company’s hundreds of offerings might be one or two weapons, such as a knife or a throwing star or a set of brass knuckles. Simply eliminating these few products will typically be enough to change the risk level of the company from high to low.

Some online merchant account providers can help with this by offering eCheck services, which are much easier to obtain than a merchant account (and which are much more difficult for customers to dispute). Even for businesses that are not high-risk, eChecks give customers another payment option, which can be valuable for customers who do not have a credit card, are over their limit, or simply prefer to pay by check.

Of course, the best thing a business can do is find an online merchant account provider that works with businesses in high-risk industries providing low cost assurance, which makes sure that the business is receiving the lowest possible costs for their account.

The Takeaway

A high-risk designation is not set in stone, and payment processors generally treat high-risk industries differently. An online merchant account provider that works with high-risk businesses is typically the best option for businesses in these industries.

Call charge.com at (888) 924-2743 to buy online merchant accounts products and services, no matter the risk in a business’s industry.