Every year, more people prefer digital payment methods over physical ones. It is all about the convenience that customers can pay for any product at any time of the day without carrying cash in their wallets.
That is why various businesses prefer to look for payment processing solutions that are secure and cost-effective. Payment service providers work with various businesses. However, there are companies that they service without any problems, while others are considered unreliable in terms of payments. This is because some of them are associated with increased fraudulent activity as well as frequent chargebacks.
Whether you’re about to start an e-commerce business or have been running a popular online store for a long time, you may have heard about the concept of a high-risk merchant account more than once. This is how payment service providers, as well as various banks, refer to unreliable businesses.
You may want to know what all this is about. We’ll tell you everything you need to know about the meaning of a high-risk merchant account.
What does a high-risk merchant account mean?
As a rule, business concludes agreements with the payment systems. If a company violates those, that is, delays payments or doesn’t make them at all, it can be marked as fraudulent and fall into the unreliable group.
In a nutshell, your company will incur unforeseen expenses. No matter what sector they are in, every firm must pay a charge to use a payment provider’s services. However, if your company is classified as unreliable, costs may differ dramatically. The value of fees you will have to pay might be several times higher than what other sellers pay.
Suppliers of payment services will compel you to enter into an agreement that will have a longer duration in addition to increased fees. You will be required to pay an extra price if you wish to cancel it before the end of its validity period. Your contract may stipulate that a certain amount or percentage of your profits will be retained by the payment service provider. This will be done to give them time to determine whether you are connected to the fraud in any manner.
Large numbers of chargebacks raise serious concerns. Even if you are a flawless seller, chargeback fraudsters can hurt your business and cause you significant losses. Thus, payment platforms will think of you as a high-risk merchant. In this case, you need to use Chargebackhit, as Chargebackhit is the chargeback management service that protects your business from chargebacks, and, subsequently, from a higher level of risk.
Common reasons
Each platform sets its criteria. Depending on who you plan to work with, you will need to check whether your business will be eligible for these criteria. Here’s why your business might be classified as unpredictable:
- If you process a significant number of operations. You will be considered unpredictable if the monthly number of payments processed exceeds twenty thousand dollars. In addition, if, on average, one operation exceeds five hundred dollars, this is also a determining factor;
- If you accept payments from abroad. If you work with reliable international markets in countries where the level of fraud is low, then you will not have any problems. These include states in Europe, North America (Canada and the United States), as well as Japan, and Australia. All other overseas markets have a significant level of risk.
- If you are a novice seller. Trust develops after a satisfying experience. Suppliers of payment services will not be willing to trust your company if you operate in a dangerous industry or if you have little to no expertise in processing payments.
- If you are occupied in a risky sector. How cautiously banks and payment service providers approach you depends mainly on the sector you operate in. You can have good visibility as well as an impeccable reputation, still, if your sector is considered risky, then there is nothing you can do about it;
- If you have a bad credit rating. Previous late or missed payments do not increase the level of trust in you and your business.
Unpredictable sectors
A lot depends on what sector you plan to do business in. Thus, you can prepare in advance for what awaits you. Here are the sectors considered risky:
- Adult entertainment;
- Casinos and gambling;
- Cryptocurrencies;
- Currency exchange;
- Insurance;
- Online stores;
- Cannabis paraphernalia industry.
This sector list is not comprehensive. By speaking with professionals, you could determine whether your company meets the criteria.
How do you pick a payment service?
For most payment networks, the standards for identifying high-risk merchant accounts are essentially the same. However, the conditions for working with such accounts may differ. If you know in advance that you will receive such a status, then you can research providers and their conditions.
You can define a list of all providers you would like to work with. Start by sending your application materials. After that, providers will assess your business and swiftly establish the type of seller you are. As a result, you will learn the requirements for cooperating with various suppliers. After reading the contract, you have the option to decide which plan is best for your company.
Conclusion
PSPs cannot provide their services to unstable companies in terms of payments on the same conditions as reliable companies. Otherwise, they can run into a lot of issues. As a result, providers have standards by which they decide whether or not to trust particular firms. You can select a provider who will give more benevolent conditions of collaboration if you are certain that your business falls into the category of high-risk ones.