If you are considering opening a merchant account in order to accept credit card payments, you have no doubt encountered the phrase ‘high-risk merchant’. This is a terrifying phrase for many merchants looking at payment processing options, but it needn’t be. Opening an online merchant account is a process that becomes uncomplicated with knowledge. The more you learn about it, the less daunting it is! Let’s look at the factors behind why companies get classified as high risk.
When clients phone the bank to cancel a transaction made through your company, this faux pas reflects negatively on your business. The issuing bank refunds the client, and charges ensue. This is known as a chargeback. Some industries are more susceptible to chargebacks than others, giving rise to the need for added security and higher merchant account fees. There are ways to mitigate chargebacks, but in most cases, companies vulnerable to chargebacks will be classified as high risk.
With the ever-growing need for online transacting, the possibility of fraud becomes greater. Fraud is something that affects every company in the world. It’s an unfortunate part of commerce and something that some companies are more prone to than others. Online merchant account providers have a duty to help alleviate fraudulent transactions. Their security needs to be top-notch if your company has any hope of combatting fraud. Card-not-present transactions generally present a high risk of fraud and companies making use of these transactions will be considered high risk.
3. Legally on the fence
Many companies lie in a legal grey area. Casinos, for example, have different legal ramifications in every country. Each district has different rules to abide by, and this makes it difficult to monitor for specific illegal dealings. Looking at products such as CBD and hemp, the close association with marijuana lands these harmless products into the high-risk category. This is because, even with extensive research, the legal goalposts for these products are ever-changing. It’s imperative that businesses, even when operating in an iffy industry, are able to be open and ethical about all their dealings.
4. Offshore businesses
Although the internet has made it easier to be in contact with anyone at any given time, operating a company in a different geographical location to the financial institution does pose problems. It becomes harder to be completely transparent, and the bank may not be privy to all necessary information for appropriate assessments to be made. This leads to cause for placement into the high-risk sector.
5. Bad credit scores
In general, banks don’t want to get involved in businesses that already have bad credit. This might make it seem like your company is doomed. However, a right high-risk merchant account provider will be able to help, not only rehabilitate your credit score, but steer you in the direction of greater productivity for the future. It may prove more difficult to get a merchant account with a low credit score, and some banks may refuse completely, but with the right advice and guidance, anything is possible.
6. Guilty by association
Touched on slightly above, some products have no illegal implications, yet are still considered suspicious because of their distant, less legal relatives. Look at multi-level marketing, for example. Why is the first thing that pops into someone’s mind ‘Ponzi scheme’ when discussing this form of sales? Some of the most successful and profitable companies in the world make use of multi-level marketing. Herbalife and Avon are two such companies, using the tactic of encouraging their distributors to employ more distributors, and creating a line of profit all the way to the top of the triangle. Each of these distributors sells a product, however, whereas pyramid schemes sell distributorships. This is the only difference, so it’s plain to see why there is a slight mistrust. The risk of an MLM company can come down drastically, so long as the company does everything above board, and keeps the network strictly to the sale of products.
7. Ticket prices
High ticket prices are a big reason your company might be considered high-risk. Consider the sale of a tennis racket compared with that of a snooker table. Chargebacks for the tennis racket, although not ideal, are not nearly as debilitating as that of a snooker table chargeback. The implications are evident, banks simply do not want to take on the risk a high-ticket business generates. Hence the need for a high-risk merchant account.
When looking at the above reasons that your company could be considered high-risk, it is understandable to see why you may be placed into this category. It is also a relief to know that there are businesses that deal specifically with your payment processing needs. At Octapay, we deal exclusively with high-risk merchants, paving the way for an effortless transition into credit card payment processing. We are aware of these intricacies, and we are there to guide you through all the hoops that need jumping through.
If some of this is still unclear, or you would like to know more about online payment processing, why not have a chat with one of our specialists? We are happy to share our vast knowledge on the subject of high-risk merchants, and happier still to get you and your business started on the road to becoming immensely profitable. Call us now +44 114 299 8909 or chat with us today!