Being a merchant in today’s ever changing, volatile marketplace can pose crazy obstacles or amazing possible gains. Working in consumer industries can be confusing, at times a daunting endeavor. Yet, despite the trife it is possible to be very successful as a merchant. Evenmore so, this applies to merchants working as high-risk accounts. As with anything, the increased risk involved, while making success less likely, also makes the potential rewards increase substantially. While working as a high-risk account there are many things that are important for you to know.
Why High Risk?
First and foremost, we need to address why a merchant might be classified as a high risk merchant account and there are several reasons.
Ecommerce: The business is selling products online or accepting what are commonly referred to as Card-Not-Present payments.
Highly Regulated Industry: The business operates in a highly governmentally regulated industry like selling tobacco or e-cigs, firearms, and alcohol.
Reputational risk: The business is considered a reputational risk by the bank for reasons such as an information technology business that risks accepting stolen information or adult entertainment industries.
High Fraudulent Activity: The business or industry has a history of increased fraud, chargeback, or identity theft making banks reluctant to do business with your company at all or at least at the normal rates.
Recurrent Billing: The business sells the majority of its products or services through a recurrent or continual billing structure. This type of business generally has a large proportion of chargeback and cancelations when clients forget or decide not to partake in the services.
Bad Credit: In this case, the person signing for a business loan has bad or no credit. In which case, banks are very wary of the proposition and will only do business if you accept the high-risk modifier.
Implications of a High Risk Merchant Account
So, your business has been classified as high risk, what does this mean for you? Since, after starting a business, the upside to high-risk accounts should be obvious (the unmitigated potential for high earning) here we will focus on some of the hurdles coming up in the near future.
If businesses are considered high risk, they need to expect it will be more difficult to get a loan and once one is found the rates will be higher than that for comparable low risk accounts. Generally, banks and other financial institutions view high risk accounts with great caution. They are unlikely willing to be associated with certain industries at all. Because of their reluctance to do business, capital and cash flow issues are common. There are banks out there that specialize in certain high risk industries. It is important to do ample research and investigate them fully before deciding on a lendor.
There are also higher costs associated with billing from credit card processing companies for high-risk merchant accounts. This is because the processing company is taking on a higher risk of chargeback or fraud while they are in possession of the debt for a high risk account versus a low risk account. In order to protect themselves and ensure profit, the rates are higher.
As a high-risk account, it is generally a good idea to find a processing company that specialises in high-risk accounts to save money and avoid fraudulent or inferior companies. Quality high-risk specialized companies, like DoubleHelix, will save you money elsewhere from the rate by tailoring their services to your needs. It is common for companies to advertise a rate below industry standards and then later make up the difference by having predatory contracts/cancelation fees, having terrible customer support, or requiring the account to carry expensive services that are unnecessary.
Furthermore, fraud is likely a more prevalent or common occurrence in many high risk industries. Credit card fraud or other various scammers generally target high risk merchants for a variety of reasons. If unaddressed, fraudsters could become a detrimental flaw to your business. The specific precautions one could take are of great variety and are specific to the way your business functions. If you have a physical location, options such as security cameras, checking ID before accepting credit card payment, and strategic merchandise display are quality options for deterring fraud. If your business is an e-commerce site, it may be a little more difficult to avoid chargeback and credit card scams. Some good options for an e-commerce site to avoid fraud include adding an extra layer of security on the website, increasing scrutiny of first-time purchasers and large purchase orders, limiting declined transactions per customer and maintaining active monitoring of your website’s functionings. Aside from adding increased security, keeping informed on current events and possible occurrences that may cause harm to your business from a news source with journalistic integrity like Newtrals is equally important.
