Allowing customers to pay using credit and debit cards helps you compete with other businesses, and offers customers the convenience they expect. (There’s also evidence that accepting credit cards can help you increase your average order value and upsell potential).
But some small businesses may be considered high-risk by merchant services providers based on a variety of factors including the businesses’ industry, client base or financial history.
Here’s a closer look at high-risk payment processing and how business owners who are high-risk can find affordable solutions to suit their unique needs.
Why A Business May Be Considered High-Risk
The factors that cause a business to be categorized as high-risk by merchant services providers are varied, and sometimes, surprising to small business owners who learn that they fall under the designation. In fact, the reasons often have little to do with the health of the business, its future potential or its past. Here are a few common reasons a business could be categorized as high-risk:
- The business involves adult content. Businesses that have some association with the adult industry or explicit content may be deemed high-risk.
- The business is subscription-based. Businesses that involve subscriptions, continuities, memberships, or offer services and products with recurring charges may be considered high-risk. In addition to the fact that this type of business model often involves handling customers’ personal information, it means the business assumes liability for keeping that data safe. Chargebacks may also be common with this type of business — when customers do not remember authorizing recurring charges, or do not know how to cancel a subscription.
- Your company deals in a highly regulated space. Businesses that operate in highly regulated industry such as financial services (including credit repair, lending, sales of assets) and health, beauty or nutrition products (including herbs, nutraceuticals or dietary supplements) may be considered high-risk.
- You sell globally. If your business has a high volume of transactions that originate overseas, you could be considered high-risk.
- Your business is overseas. Part of your business risk is based on the merchant services provider’s ability to verify that your business is what it claims; when your home office is overseas, that may be difficult for a merchant services provider to do accurately and confidently.
- Most of your sales are online. “Card not present” transactions are often assessed higher fees than those where a buyer presents a card to a person at the point of sale because it’s difficult to verify the cardholder is who he/she claims. As a result, there’s a greater chance that the transaction is fraudulent, and will result in a chargeback. If you sell only online, your business could be considered high-risk.
- Your business doesn’t have an established or positive financial history. Payment processors use a business’s finances to determine how much risk they’ll bear in the relationship. If you don’t have an established financial history, or you have one that includes a history of missed payments, cash flow shortages or bankruptcy, you may be perceived as a high-risk merchant.
Your Options As A High-Risk Merchant
You may benefit from a relationship with a merchant services partner that is familiar with the unique needs you face as a high-risk merchant. Though you may have to pay slightly higher fees to process customers’ credit or debit card payments when you’re deemed high-risk compared to a business that is not, working with a merchant services provider that is accustomed to working with clients who run businesses like yours can help you strategize cost-effective processing solutions that also reduce the likelihood of chargebacks and similar incidents.
Author bio: As Vice President of Sales at Performance Card Service, Matt Wollersheim’s focus is on general marketing, client relations and development of new processing channels. Performance Card Service provides high-risk payment gateway solutions.