Are you trying to get approved for processing electronic payments? Are you worried that your business might be considered high risk? Here's more information about navigating high risk payment processing and tips to avoid problems with the payment processors and banks.
What Are High-Risk Businesses?
Payment processors define the risk level of merchants as a method of mitigating potential financial loss. Often merchants are classified as high-risk, unfortunately this muddies the water and can affect the merchant's ability to get or keep payment processing services. Additionally, it increases the processing fees that the merchant must pay to compensate for their higher risk.
What Affects a Merchant Accounts Risk Classification?
Many factors can affect your merchant account status with a payment processor. The nature of your business and your personal credit history can influence a payment processor's status of your account.
Here are some of the main reasons you might be a high-risk merchant.
Business Type or Industry
Merchants can be considered high-risk for a myriad of reasons, including but not limited to, type of industry, excessive chargebacks and returns, high ticket sales, and extended time to deliver products or service . Each payment processor has there own classification systems for risk, below is a summary of business sectors that are often classified as high-risk.
Adult products and online dating services
CBD, vape shops, and supplements
Airlines, cruises, and travel clubs or timeshares
Furniture, auctions, and electronics
Gaming or gambling
Subscription and memberships with recurring payments
Debt collection or credit repair services
E-commerce and internet services
Any multilevel marketing business opportunities
Excessive Chargebacks
Many high risk merchants experience excessive chargebacks. This occurs when a customer disputes a sale or transaction with their bank. The dispute is presented to the merchant, and they must prove the goods or services were provided as promised. Unfortunately, whether the dispute is won or lost, the chargeback is counted. At the end of the month if chargebacks exceed 1% the merchants processing account is subject to termination.
High Refund Percentage
High rates of returns can also lead to a merchant having their account classified as high risk. Returns generally result in a refund by the merchant and if the refund rate exceed 10% the account could at risk for termination despite the average rate of return for online sales being more than 20%.
High Ticket Prices
If a business has a sales average greater than $2,500, they pose a higher risk. Higher prices sometimes come with a higher likelihood of having the sale disputed or reversed. The merchant must prove their ability to handle chargebacks or refunds for the value of the transaction. Proper risk evaluation often includes reviewing a merchants bank statements or other important financial records.
Time Lag Until Delivery
Merchants that sell products or services with a delayed delivery pose a significantly high risk to payment processors. Cruise lines, travel, timeshares, and furniture stores are some great examples of future or delayed delivery. This time lag often results in a higher rate of chargebacks or refunds, putting the merchant at risk of having their account terminated.
Solutions For Merchants
High-Risk merchants seem to fight a never ending battle to keep their payment processing account in good standing. Depending on the specific challenges that the merchant faces; there are several solutions that effectively mitigate risk helping reduce fraud, chargebacks, and refunds.
If your business is classified as high risk due it is imperative that you work with a reputable high-risk merchant account provider.
Your Solution For High Risk Payment Processing
Contact Xcel Partners to discuss your needs with our dedicated team of highly experienced industry specialists that offer tools and services that help merchants grow and process payments more efficiently. Our mission is to help merchants process payments and avoid termination despite the mounting pressure and prejudice of their high-risk classification.