Debit cards accounted for 28% of the payment methods used by consumers. Credit cards and cash are other methods used, but not as often.
Businesses can no longer survive on just accepting cash payments. People don’t tend to carry that much cash with them, if at all.
Businesses have to have a payment processor to accept credit cards. For most businesses, this is a very simple process and can get done in just a few days.
There are businesses that get labeled high risk merchant accounts. This makes it difficult to get a payment processor.
High risk merchant payment processing solutions can provide the answer if you find yourself labeled as high risk.
Keep reading to find out what high risk merchants are and how to get the best merchant payment processing solution for high risk merchants.
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What Are High Risk Merchants?
High risk merchants are businesses that processors think have a high chance of fraud or chargebacks.
There are many reasons why a business gets classified as high risk. Banks first look at the industry of the business.
If you’re in CBD sales, gambling, adult entertainment, online dating, or ecommerce, you have a high risk of fraudulent transactions.
The travel industry is a high risk industry because of the number of fraudulent transactions and chargebacks. People book travel months in advance and with the pandemic, they may need to cancel their plans.
They might not agree with the travel company’s cancellation policies and file a chargeback claim against the business.
Businesses that have recurring payment plans have a high rate of chargebacks. They might not have clear cancellation policies, so customers automatically get renewed and file a chargeback against the renewal.
Companies that have large-dollar transactions, such as furniture companies, often get viewed as high risk businesses. They have high chargeback rates, which are very costly to banks and businesses alike.
Even if your business isn’t involved in one of these industries, you can still get tagged as a high risk merchant.
Does your business have international customers? If you sell to countries outside of Japan, the European Union, Canada, and Australia, you could be classified as high risk.
New merchants that don’t have a record of business are high risk. New businesses might get labeled as high risk at first, establish themselves, and then move out of the high risk category.
High Risk vs. Low Risk Merchants
Is it that bad to get classified as a high risk merchant? It’s not necessarily bad. It’s harder to find a payment processor to work with.
If you thought about opening up a Stripe or PayPal account to start with, forget it. They don’t accept accounts from merchants in high risk industries.
You can expect to pay much more for a high risk merchant account as well. Payment processors charge a monthly fee, per transaction fee, and a percentage of the transaction.
The amounts differ between payment processors. You can expect to pay much higher fees for high risk merchant solutions.
Your business may also have to provide a cash reserve. They could ask for an upfront reserve, which is like a deposit, to safeguard the bank from chargebacks and fraud.
There are rolling reserves and capped reserves. These allow the processor to hold a percentage of each transaction beyond the normal fees.
The percentage gets put into a reserve fund to protect the payment processor.
Finding the Best High Risk Merchant Solutions
You know that you need to process credit card and debit card transactions. Otherwise, you’ll lose a lot of business.
It’s worth it to pay the higher fees and attract more business than limiting your business to cash-only transactions.
You’re going to have to find a high risk payment processing solution. If you’re in a high risk industry, look for providers that tailor payment processing solutions for your industry.
Companies like SecuironPay specialize in ecommerce solutions and Bankcard works with CBD, ecommerce, Forex, property management, and other industries.
Once you have the names of a few providers that work with your industry, look at their terms for merchants.
Find out what their fees are and if they have reserve requirements. Learn how long it takes for you to receive deposits from them.
Do they accept other forms of payment like SEPA and ACH payments? If you need processing equipment on-site, will they provide the equipment?
Ask if there are additional fees. There may be an equipment rental fee and an early termination fee if you end the contract early.
The most important part is customer service. You’ll need to contact them at some point. You want to know how responsive and effective they are.
Applying for High Risk Payment Processing
The application process is much more involved for high risk accounts than low risk accounts. Payment processing companies want to see a lot of documentation.
You’ll need six to 12 months’ worth of bank statements and profit and loss statements. They also want to see the last few years of tax returns for the business.
If you can show that you have a lot of cash in the bank and few chargebacks, you may be able to get a favorable deal from the payment processing company.
They’ll review your documentation and statements. The more transparent you are in the process, the better.
Maintain open lines of communication with the processing company. This will help speed up the process. Once you’re approved, you’ll be able to accept credit card and debit card payments.
Getting High Risk Merchant Solutions for Your Business
It’s tough to get labeled as a high risk merchant. Your business faces higher costs and difficulties to get a merchant payment processing account.
It’s not the end of the world if you have a high risk business. Follow the tips in this guide to find the right provider for your business.
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