For most sellers, accepting customers’ credit card payments means setting up an agreement with a merchant account provider. Never a straightforward process, choosing one of these merchant services providers can be even more challenging if your business is considered to be “high-risk.” Knowledge about merchant account providers and how they determine which companies fall into this category can help you to choose the standard or high-risk merchant account that is right for you.

A word about merchant accounts.

For most sellers, especially those who cater to online customers, having a merchant account provider is essential. The reality is that this is the best way to process customer payments. Solutions such as Square work well for very small companies or those with a low sales volume but are not practical if you have a larger operation or want it to grow. Once it’s decided that you fit into this category, you will find yourself looking for merchant account providers, all of whom are fiercely competing to have you as a client.

Even so, all businesses are not created equal. Due to a number of factors, some retailers are considered more dangerous to lenders and are placed in the high-risk merchant account category. These specialty merchants are subject to higher processing fees and long-term contracts that are more difficult to exit.

Reasons you could get categorized as a high-risk business.

Like you, merchant account providers are in business to make a profit. Therefore, they want to take all reasonable measures to ensure that the merchants they work with are highly likely to make good on their payments each and every month. Red flags go up, however, if these businesses fall into one or more of the following categories:

  • They experience a high rate of chargebacks. Chargebacks occur when a customer goes to their card provider and requests a refund on a purchase made from you. Each time this happens, you will be charged a fee — even if you are in the right and the chargeback is ultimately reversed. Merchant account providers get squeamish if businesses experience frequent chargebacks because the fees can become burdensome. Numerous chargebacks can also make it difficult for businesses to receive much-needed loans.
  • They are frequent victims of credit card fraud. Particularly for retailers who use virtual terminals or receive a majority of their payments online, fraud is more likely. If any of your payments are card-not-present, it is harder to spot scammers and criminals, leaving you liable for the costs.
  • The business is headquartered overseas even though they do business in the United States. If you are based offshore and are looking for a merchant account, U.S. underwriters will not have an easy time investigating all of the intricacies of your operations. This lack of transparency causes many businesses in this category to be considered high-risk.
  • The business is considered a reputational risk. Some verticals are deemed too heavily regulated by banks and there are others that banks may prefer to not be publicly associated with. 
  • They seem to be associated with pyramid schemes or other types of sales scams. Merchant account providers want to feel secure that your selling tactics are above-board. If they fear that your customers are being coerced or pressured into buying, they may legitimately worry that these buyers will eventually file chargebacks.
  • Their credit score is low. Your credit score reflects how well you have done with paying your bills on time over a period of months or years. If it is subpar, your business could be placed into the high-risk basket. An extremely poor number might actually mean that not even a high-risk merchant account provider would accept you as a client. Therefore, it is always in your best interests to raise this number by being highly organized and practicing conscientious fiscal behaviors.
  • Their average sales ticket is high. For retailers who sell mostly expensive items, chargebacks can take an even greater toll and be more difficult to recover from.

Being considered a high-risk business or what we at Humboldt like to call a “specialty merchant” is not the end of the world. Some vendors in certain industries simply figure it into the cost of doing business while other merchants in sectors that are less inherently prone to risk can make changes in their management strategies that can enable them to eventually achieve low-risk status.

Businesses commonly considered to be high-risk.

If you run one of the following types of companies, you can expect to be placed in the high-risk category:

  • Adult entertainment, including toys and books;
  • Airline/travel;
  • Stores associated with weapons, including ammunition;
  • Any business with annual contracts;
  • Antique sales;
  • Businesses involved with astrology, spiritualism, and other esoteric matters;
  • Collectibles sales;
  • Automobile sales;
  • Bankruptcy attorneys;
  • Auctions or betting;
  • Brokering;
  • Lending, including business loans and check processing;
  • CBD products;
  • Cigarettes;
  • Coupon sales;
  • Credit repair;
  • eBay, Amazon, or Google stores;
  • Dating businesses;
  • Electronics;
  • Import-export businesses;
  • Life coaching;
  • Marijuana and CBD;
  • Prepaid calling or debit cards;
  • Psychic services;
  • Timeshares, vacation brokers, etc.;
  • Vape shops.

This is only a partial list. However, a good rule of thumb is this: if you are perceived as more likely than the average company to experience excessive chargebacks, your business could be placed in the high-risk category.

These days, successfully selling products and services means that you must accept customers’ credit cards. Obtaining a merchant account is the best way to accomplish this task if you want to grow your operation. While being given the high-risk designation is probably not your first choice, careful research will enable you to find a reputable merchant account provider that is well-equipped to help you serve your customers in the best possible way.

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