The price of doing business in the digital world is high across sectors and industries. In every business deal, partnership, and transaction, there’s always a certain level of risk. For example, the risk can be a potential threat to your brand and integrity or a human factor – but more often than not, the risk is financial.
If your company has been labeled high-risk, you should expect certain changes in accounting and the way you manage money. However, this doesn’t necessarily mean that you need to fall behind your low-risk competitors, too. It’s all just a matter of perspective and internal organization.
Here’s what it means to be doing risky business.
What Is a High-Risk Merchant Account?
Before we explain what a high risk business merchant account is, perhaps we should take a moment to define merchant accounts in the first place. It’s important for anyone too busy with day-to-day tasks to learn how money gets transferred from their customers’ wallets to their accounts.
There are usually several parties involved in every digital transaction, the most important of which are the cardholder, merchant, and payment processor. In this scenario, your customers are the cardholders, your business is the merchant, and the payment processor is a third-party mediator.
Unfortunately, your payment processor now thinks of you as a high-risk business.
There are several different reasons for this, and we’ll talk about some of them later on.
Right now, everything you need to know is that high-risk merchant accounts get charged with higher processing fees on every transaction. Is it fair? It’s fair and necessary from the payment processor’s standpoint, but is it fair to your business? It depends.
Is Your Merchant Account Devoid of Risk?
Some business ventures are risky by nature – for specific industries and business models, the higher risk comes with the territory. However, even if your company doesn’t fall under this category, it can still be labeled based on several criteria. These criteria may also vary from one payment processor to another.
The underlying reason for being marked as high-risk is simple – the payment processor has a greater chance of losing money while handling your transactions.
Take chargebacks or fraud as an example. If there’s a high probability for either, the payment processor will want to protect its position. The price of choosing a particular industry or business model should be yours to pay – the payment processor shouldn’t be required to pay for it.
Typically, a business is characterized as high risk if:
- It has a low credit score;
- Its track record is insufficient;
- It boasts a high transaction volume;
- Accepts international payments.
The following industries are usually marked as high-risk:
- Subscription-based service providers;
- Debt collectors;
- E-cigarette and CBD vendors;
- Online dating;
- Adult industry.
If any of this rings any bells, your business is probably not devoid of risk.
What Should High-Risk Merchants Expect?
The only sure way of knowing whether or not your company will receive the high-risk treatment is to choose a payment processor and submit the necessary papers for opening a merchant account. You can also get acquainted with the processor’s criterion before submitting.
In most cases, high-risk merchants must pay a higher processing fee.
With a certain number of payment processors, you can also expect to be locked into longer contract terms. There’s also a rolling reserve, which is a way for the payment processor to secure its money by holding a percentage of your income for verification.
Keep in mind that your business may be labeled low-risk for a certain period before that changes. With business growth comes a new set of challenges – it’s not rare for companies to pivot to different industries or business models or expand to international markets.
Business is always risky, but there’s something you can do about it.
In addition to making informed decisions about the future of your company, you can also secure a more favorable payment processing status if you choose a payment processor that specializes in high-risk merchant accounts from the get-go. Why wait for them to label you?
Running a high-risk business is challenging, but only if you approach it from the right angle.
Instead of having your merchant account status changed midway or being dropped from your payment processor altogether, you can take a proactive stance. If there’s a good chance, a payment processor will mark you as high-risk, plan accordingly and pick the best one.