What Is A High-Risk Business?

 

Some Online Businesses and industries are treated as high-risk businesses by payment processing companies. They are categorized as high-risk businesses depending on several factors such as the chargeback ratio of a merchant, times the product is returned, or payment processing history. Considering these factors, payment processing generally does not prefer to provide its services to high-risk clients.

High-Risk Factors:

Merchant account providers and Payment Processors consider a business as high risk if it has a higher chargeback ratio, The customer makes a credit card payment and cancels it when the merchant has received the payment, Refunds for the returned products, and credit card fraud. Companies having a bad credit history and those which provide no guarantee for loans are also considered high risk.

What is High-Risk Payment Processing?

 

Any business wanting to start an online payment first needs to have a merchant account. A merchant account has 2 types, low-risk merchant account, and high-risk merchant account. If you run a low-risk business which means your business is not involved in any of the above mentioned factors then you can easily approach the payment gateway service providers and they will easily offer their services. But, it is not the same with high-risk businesses. The high-risk business has all the factors mentioned above because of which such businesses find it difficult to get paid service providers as they do not want to serve such businesses.

The business that is categorized as high risk has a higher possibility of an increase in a chargeback. This also leads to higher payment processing fees which relate to risks involved with such businesses.

High-Risk businesses pay high chargeback fees, payment processors put a reserve on merchant accounts which can be used by acquiring banks to compensate for the chargebacks. With this practice, an additional layer of protection is on offer on the bank’s side against any unexpected behavior from the merchant.

If you run a High-risk business the best solution is to maintain a good relationship with payment gateway providers that specialize in such businesses. These payment gateway providers can help you monitor suspicious transactions.

Types of business considered High Risk:

When you apply for a merchant account, you go through an underwriting process with a payment processor. Different processors have different standards, so even if there are some similarities in your business but the following things that can put your business in a high-risk category.

  • Bad Business or Personal Credit Score: Bad credit score is a negative impression for payment processors as it is considered that you are not good at managing your finance or are more susceptible to fraud.
  • Merchant Account History: This shows your record stating a history of chargebacks or frauds with another merchant account provider, if there are any it will create a negative impact on your application.
  • Years in business: The older business you have the better impression you have on the merchant account provider. Merchant account providers are more careful with customers having less experience in the business.
  • Headquarters Location: If you provide service to another country where your headquarters isn’t then you are more prone to fraud.
  • Questionable Products: This completely varies for different payment gateways, but the best example is gambling, as it is illegal in some countries.
  • Huge purchase amount: If you have an unusually high average purchase amount, there are more chances of fraud because of which it can be considered as a high-risk business.

It might seem a bit unfair for High-risk businesses as the payment processing is expensive for such businesses. Many payment processors will not want t work with you but also there are many reputed service providers that can take your business. Do some research, evaluate your ideas, and be careful with the term before signing.