Businesses whose transaction patterns are considered high risk may find it difficult to secure a credit card payment processing account.
A high risk account is one that the processing company determines to be a greater than average risk to them. There are many factors a company may consider when determining if a merchant would need a high risk merchant account.
Some of those factors include:
Each processor sets its own standards when determining what is high risk.
Certain industries are subject to more fraudulent purchases and in turn, have the potential for disputes and chargebacks.
Luxury retail, electronics, and travel are among some of the industries that face more fraud than average.
Some card processors choose not to work with certain industries such as firearms, tobacco and cannabis since they may require the processor to secure additional lines in underwriting through their insurers.
A chargeback is when a merchant needs to issue a refund to a credit card.
Certain businesses like ones with subscription-based payment models, are subject to a higher rate of chargebacks on average.
Higher average ticket values are also tied to higher chargebacks as customers are more likely to dispute sales they are dissatisfied with when they involve larger sums of money.
Typically, a business with high average dollar values for transactions has fewer transactions overall. This results in the potential for chargebacks to disproportionately affect the financial stability of the company.
A travel company that sells only 10 packages in one month would be much more financially affected by 3 chargebacks than a company that has 100 smaller dollar value transactions.
This results in a greater risk for the credit card processor.
A credit card processor may factor in how much capital reserve a company has when creating an account. This may help assess how likely a company is to stay in business and be able to cover chargebacks as they occur.
If a company does go out of business and chargebacks are pending, the credit card processor becomes liable for repaying those customers. As you can see, the higher the ticket values and the more frequent the chargebacks, the greater the risk for the processor.
If your business is determined to need a high risk account, don’t fret. You will still be able to accept credit card payments, but may be subject to additional fees and have some additional parameters in place.
Some features high risk accounts may include:
Be sure to understand the requirements of a high risk merchant account set forth by your payment processor so you do not have any surprises down the line.
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