Are you a business owner who has been labeled as a “high risk merchant”? If so, don’t worry! You’re not alone.
Many businesses find themselves in this category. This is due to various reasons such as the nature of their industry or past financial issues.
Being classified as high risk can make it difficult to obtain payment processing services. It may cause concerns about financial stability.
In this blog post, we’ll explore what it means to be a high risk merchant. We’ll also cover why businesses are categorized this way, and how they can navigate payment processing options while minimizing risks.
So sit back, relax, and let’s dive into the world of high-risk merchants!
Definition Of High Risk Merchant?
- A high risk merchant is a business that payment processors or banks consider risky to offer:
- payment processing solutions
- credit card processing
- other types of financial services
Some businesses are labeled as high-risk because their industry presents more risks for:
- chargebacks
- fraud
- legal issues
Other reasons may include past financial problems such as bankruptcy or poor credit history. Being classified as a high risk merchant can make it tough to find reliable payment processing companies willing to work with you.
Payment processors perceive the increased level of risks associated with these merchants. This makes them hesitant to provide their services unless they have tightened security measures in place.
However, there are still options available for businesses looking for efficient payment processing solutions. Specialized providers that cater specifically to the needs of these merchants can offer tailored packages. These packages are designed to minimize risks while offering competitive pricing and features.
Why Some Businessmen Become a High Risk Merchant
There are several reasons why some businessmen become high risk merchants. Let’s cover a bit of these reasons and understand why your business might be considered a high risk.
Natura of Industry
One of the most common reasons is the nature of their industry. This includes online gambling or adult entertainment. These industries are considered high risk because they have a higher likelihood of chargebacks and fraud.
Poor Credit History
Another reason why a business may be classified as high risk is due to poor credit history or financial instability. Banks and payment processors are less likely to work with businesses that pose a higher financial risk. This means these companies will need to find alternative solutions for payment processing.
Unstable Political Climates
Businesses that operate in countries with unstable political climates or economic conditions may also be deemed high risk. This is due to the increased likelihood of financial instability and chargebacks.
New Business
New businesses without an established track record can also be categorized as high risk. This is because they lack proof of reliable cash flow and low chargeback rates.
What is Expected of a High Risk Business
High risk businesses have stricter requirements for payment processing. They must adhere to more regulations than low-risk merchants.
Robust Security Measures
One expectation for high risk businesses is the need to implement robust security measures. This helps to reduce the potential for fraudulent activity.
This may include using:
- encryption technology
- PCI-compliant software solutions
- suspicious transactions monitoring systems
Comply With Industry-specific Laws and Regulations
Another expectation is compliance with industry-specific laws and regulations. For example, online gambling sites must abide by strict anti-money laundering guidelines. Such guidelines are set forth by regulatory bodies.
Similarly, pharmaceutical companies must comply with FDA rules. This is with regards to the sale and distribution of controlled substances.
Face Higher Fees
High risk businesses will also typically face higher fees associated with payment processing. This is due to their increased level of risk. To mitigate this expense, many high risk merchants seek out specialized merchant account providers. These providers offer competitive rates tailored to their specific needs.
High risk businesses need to be proactive. They must comply with relevant regulations. They must also implement effective security measures. Such measures help protect customer data. Thus, minimize financial risks associated with chargebacks or fraudulent activity.
Examples of High Risk Merchants
Examples of high risk merchants are varied. This can include businesses in industries such as:
- online gambling
- firearms
- adult entertainment
- tobacco products
- pharmaceuticals
- travel
These industries are considered high risk due to their potentially controversial or sensitive nature.
Online Gambling
Online gambling is one of the most common examples of a high risk merchant. There is a higher likelihood that they may be targeted by hackers or fraudulent activity. This is online gambling businesses deal with large amounts of money being transferred across borders.
Firearms
Firearms dealers also fall under the category of high-risk merchants. This is because they deal with an inherently dangerous product that has strict legal regulations surrounding its sale and distribution.
Adult Entertainment
Adult entertainment companies are another example of high-risk merchants due to their content often being deemed controversial or offensive. This industry also faces unique challenges when it comes to payment processing as many traditional banks will not work with them.
Pharmaceutical companies
Pharmaceutical companies often have difficulty obtaining merchant accounts. This is due to the potential liability associated with selling prescription drugs online.
Additionally, this industry faces increased scrutiny from regulatory bodies. This makes it more challenging for them to operate within acceptable guidelines.
Travel Business
Travel-related businesses like airlines and hotels can also find themselves categorized as high-risk merchants. This is due to the prevalence of fraud in these areas.
The constant influx and outflow of customers make it difficult for some processors to accurately identify legitimate transactions. This comes against those made by criminals trying to steal personal information.
What Are Business Payment Processing for High Risk
When it comes to high risk businesses, payment processing can be a bit more complicated. This is because traditional banks and financial institutions are hesitant to work with these types of merchants. As said, this is due to the increased likelihood of chargebacks and fraud.
Specialized Payment Processors
One option for high risk businesses is to work with specialized payment processors. These processors have experience working with high risk industries and offer solutions. This includes chargeback prevention tools and fraud detection systems.
Specialized Merchant Account
Another option is for merchants to obtain a high risk merchant account. This allows them access to payment processing services tailored to their specific business needs.
Merchant accounts for high riskstypically come with higher fees than standard accounts. However, they also offer added security measures that help protect against fraudulent activity.
Ultimately, high risk merchants need to do their research when selecting a payment processor or merchant account provider. They should choose a company that has experience working within their industry. The company should offer reliable customer support in case any issues arise during the payment process.
A Closer Look Into High Risk Merchant Accounts
High risk merchant accounts are specifically designed for businesses that operate in high-risk industries. Due to the risky nature of these businesses, traditional banks and financial institutions may hesitate to provide them with payment processing services.
High risk merchant accounts offer a solution by providing these businesses with a way to accept credit card payments from customers. These types of accounts come with certain conditions such as:
- higher fees
- rolling reserve requirements
- more strict underwriting guidelines
To apply for a high risk merchant account, business owners need to provide detailed information about their company’s operations including:
- sales volumes
- chargeback ratios
- potential risks
Once approved for a high risk merchant account, businesses can start accepting payments from customers. Payments can be made through various methods including:
- credit cards
- electronic checks
- payment gateways
Payment processors who specialize in high-risk industries also offer additional fraud prevention tools. They help protect both merchants and customers.
How Are High Risk Merchant Payments Made
High risk merchant payments are typically made with certain credit cards. This is specifically those that are specially branded as such from established card brands, such as:
- Visa
- American Express
- MasterCard
Alternatively, some traditional bank cards may be accepted by a few online payment processors. This is if the merchant meets the criteria. High risk merchants commonly are required to:
- set up their merchant account
- pay higher transaction fees
- react to higher chargeback rates
In any case, merchants need to find the right payment processor. These processors specialize in high risk processing to keep their business running smoothly.
Understand What A High Risk Merchant Is
A high risk merchant is defined as any business operating in a higher risk sector. This is typically characterized by a higher frequency of chargebacks or fraud. This designation requires the merchant to obtain special services or process payments.
They come with special requirements to safely accept card payments. To learn more and get started, contact a High Risk Merchant service provider today.
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