Running a business is hard. Grappling with changing trends, dealing with and accommodating various stakeholders is hard as it is; nobody needs the payment process to be made more difficult for them. The truth remains that very few businesses are able to survive without effective modes of cashless payment processing. However, often due to reasons beyond anyone’s control, merchant accounts can be qualified as ‘high-risk businesses.’
Being labeled as a high-risk merchant account can torpedo your business and escalate your expenses by a significant amount. If you have already been branded as a high-risk merchant account or are applying for a merchant account, contact the Cash Discount Program. We have not only helped businesses attain the status of low-risk merchants, but we also have an innate understanding of how merchant account providers function. We can help you sidestep the ever-rising processing fees and even assist in the application process.
But, first things first, let’s get down to the basics for a detailed understanding of merchant accounts and qualifications of high-risk merchant accounts.
What is a merchant account?
In layman’s terms, when you start dealing with cashless payment gateways, you are provided with a merchant account by the merchant services providers. This merchant account is then used to transfer funds whenever a customer makes a purchase, and transactions pass between your business’s and customer’s debit or credit card account.
It can also be better understood as ensuring that funds from the credit card transaction goes through from the cardholder’s account to the business owner’s bank account, as the payment is routed by the merchant account provider before being transferred to your business bank account.
While the entire transaction can make you anxious, consider the system as a buffer between the cardholder and the merchant when a sale is made. In short, the business receives the money; the process is safe, secure, and efficient. Usually, a withdrawal against the funds from the transaction can be made from the merchant account within a day or two of processing a transaction.
Many payment processors recommend businesses to have merchant accounts for risk mitigation. This way, merchant services companies can assist with more control over millions of credit card payments and allow them to catch fraudulent transactions, chargebacks, and other complex issues that come with an integrated payment gateway. With the help of a merchant account, payment solutions are made safer, faster and help manage problems more practically.
Usually, there are two types of pricing models used for merchant accounts – Interchange Plus and Tiered Pricing programs.
What are high-risk merchant accounts?
Certain businesses are often automatically considered high-risk industries, and therefore are offered high-risk merchant service accounts by the payment providers. When opening a merchant account, you will be asked to submit your tax information, and your credit history will be checked.
Most payment processors either deny the application or compensate for the higher risk by charging high account fees for a high-risk payment gateway.
Unfortunately, the rules are not set in stone when qualifying for a high-risk merchant account. However, some common triggers can sound the alarm for high-risk merchant processors. Arming yourself with knowledge of what factors constitute being branded as a high-risk payment processor would help you improve your application:
High-risk industry, location, and clientele
Some industries posed an increased risk when it comes to operations or functioning in high-risk categories, such as:
- Cryptocurrency Companies
- Prepaid Debit Card Companies
- Online Drug Providers
- Firearm and Ammunition Business
- Telemarketing Sale Companies
- Adult Entertainment and Dating Companies
- Online Auctions
- Airline Companies
- Subscription Services
- VOIP and Calling Card Companies
- Online Gaming Companies
- Tobacco and Cannabis Companies
- Financial Advisor Companies
- Bail Bonds Businesses
- Timeshare Companies
Some industries are considered in a high-risk category due to their reputation, while others are considered high-risk due to the nature of the business.
Also, it can be considered high risk if you have any offshore establishments, such as in any country outside of the US, Europe, Japan, Canada, or Australia.
Online credit card processing
A payment processor can qualify your business as a high-risk merchant account if you accept credit card payments and have an online business, meaning you don’t physically accept card payments, also known as ‘card-not-present.’ Even if you offer tangible products, not having the card present at the time of the transaction can sometimes qualify you as a high-risk merchant.
Poor credit score
This should not be surprising, considering a credit score can make or break any application that relates to your financial stability. Poor personal credit is the first sign to credit card processors that the applicant cannot be trusted.
Our team at CashDiscountProgram.com understands that personal credit is not always in your control. Things can happen in life that can, unfortunately, have a terrible effect on your credit history. The best thing to do here is to take time and rebuild your score by making wise and sound financial decisions, like paying the bills on time, not taking on too much debt, paying the installments and your creditors regularly.
Give us a call if you are new to high-risk credit card processing, and you have a business that accepts credit cards. We will help process your application for a merchant account and try our best to advise you on avoiding the tag of high-risk credit card processing by a credit card processor.
Excessive chargeback ratio
Chargebacks can happen due to many reasons – a bad batch of products or mistakes in processing payments; and just a general processing history of high chargeback can be a red flag for many high-risk merchant accounts. It is crucial to maintain a low chargeback ratio to fly under the radar of payment processors.
Duration of high-risk business
This may seem trivial, but the business’s longevity makes a more significant impact than you realize. If you are new to the game, you have a lot to prove and no bankable history to prove that you are not high-risk. It takes a lot to get status designations and preferential rates from a payment processor. The longer you survive running an organization with an active merchant account, the lower risk you pose to the merchant service providers.
This one’s a no-brainer. Managing your finances wisely is key to avoiding high-risk processing. Stay up to date on all requirements your merchant account needs to avoid being designated the dreaded ‘high-risk merchants’ title.
If you accept payment in multiple currencies, this can further complicate things and be termed high-risk payment processing. High-risk payment processors may consider you more of a liability if you have many offshore businesses and work with several different currencies globally, as you will need an offshore merchant account.
Average credit card transaction
If the average credit card transaction is over $500 at your company, this can be considered a high risk for payment processing.
Average monthly sales volume
If your monthly sales volume is over $20,000, some processors can put you in the high-risk merchants category due to the volume of transactions that need to be processed. Also, hackers may target such lucrative transactions, where you can expect fraudulent activity. At CashDiscountProgram.com we welcome large merchant accounts and our system will assist in getting your business the lowest rates available.
If you have multiple recurring subscriptions as opposed to one, this is considered risky, and you can be termed a high-risk merchant account by the credit card processing providers.
The factors detailed above for being designated as a high-risk merchant account are highly subjective. Each credit card processing company has its policies and limits to differentiate between a high-risk merchant account and a low-risk merchant account.
High-risk processing providers evaluate your business according to what they internally consider as high-risk businesses. Our pro tip will be to research enough to work with a provider that may not qualify you as a high risk.
How to NOT be a high-risk merchant account?
Being designated the coveted low-risk merchant account can ease up many things for you. For starters, you can avoid complicated paperwork, sky-high fees, complex fees models, chargeback fees, account termination, and freezing, and the requirement to maintain reserves, such as a rolling reserve, capped reserve, or an upfront reserve.
Many businesses enjoy the title of low-risk businesses. Here’s how to do it:
- To combat high-risk business practices, you can branch out and work on implementing policies that can make your transactions less risky.
- Low-risk providers implement tighter security protocols. Ensure that all of your virtual terminals and payment gateways are safe to transact on. All the transactions should be heavily encrypted and meet the DSS standards of credit card companies. This can also drastically reduce the amount of fraudulent activity you may encounter.
- For low-risk payment processing, you can create new business practices that reduce a large number of chargebacks, if any. You can consider offering refunds, becoming more PCI compliant, and also improving your customer service. Provide confirmation emails, clear transaction descriptions, and other helpful information. This can help your customer feel that you are a trustworthy provider. You can also investigate customers with suspicious orders by calling the Voice Authorization Center of an issuing bank to verify the information manually. Another approach is to collect signatures when an item is delivered and keep a copy of the digital signature. All these practices show that you are a responsible business.
- Avoid being titled high-risk accounts by revealing previous processing history. The providers will gauge how trustworthy your business is. If everything is up to order, they may pass over labeling you as a high-risk. This practice also promotes transparency and shows you have nothing shady to hide.
- Even after all this, if you still get the high-risk tag, make sincere attempts to renegotiate the terms every three months. Meanwhile, you can keep looking to switch to other providers who will not qualify you as an increased risk and offer you fair terms.
Why Use the Cash Discount Program?
It’s not the end of the world if you get designated as a high-risk merchant account! You can still accept payments and accept credit cards. What it will mean for your business is greater scrutiny, early termination fees, higher fees, and a whole other range of complications that can leave a bad taste. This is where enlisting the services of the Cash Discount Program can prove to be a godsend.
Our specialized risk department is well-equipped to get your application processed and approved quickly. Since we also provide POS solutions that have helped many of our clients streamline their payment processing, we have inside knowledge of how it all works. For us, you are more than just a number on a spreadsheet, we know how much effort goes into getting a business off the ground and we respect that.
For some respective owners, dealing with a high-risk processor often means dealing with poor customer service and not getting a speedy resolution to their problems. At the Cash Discount Program, we understand that time is money, which is why you always get highly responsive domestic customer service, trust, and reliability.
Contact us if you need to help with your high-risk credit card payment processor. If you are still in doubt, just let us look at your current processing statement, and we will see if we can do anything to reduce or eliminate those pesky fees, including the early termination fee!