In today’s world, when it comes to the preferred currency, most consumers choose plastic over paper. Because a majority of consumers shop online, credit cards usage continues to climb.
In the last two years alone, the number of online shoppers in America has risen from 79% to 96%, and Canadian shoppers are close behind. With this steady increase in cyber-shopping, credit card purchases are more popular than ever. And, all of this card processing means higher risks for merchants. Your business may be growing, but is high-risk credit card processing really worth it?
What is high-risk credit card processing? To make it possible for merchants to accept online credit card payments, businesses need to establish merchant accounts with banks. The fees associated with processing payments vary a great deal depending on the type of business or service; the way transactions are performed; and the history of losses. If banks determine that your business falls into the high-risk category, you pay higher fees.
What categorizes merchants as high-risk? One of the biggest reasons a bank perceives a business as high-risk is the increased potential for chargebacks. Depending on the product or service you’re selling, which countries you’re selling to, and the average dollar amount of each sale, you can achieve high-risk status in no time. That’s not good news. You’ll feel it in your profits when the credit card processors tack heavy fees onto each transaction; trouble for high-risk businesses.
If your business is labeled high-risk, it’s essentially flagged by credit card processors and you could face any of the following:
• excessive fees and chargebacks (often more than double the standard fees)
• increased possibility for chargebacks
• higher potential losses
• higher initial setup fees
• higher monthly service fees
Additionally, processors of high-risk merchant accounts often require the merchants to have a “reserve” account. This account is used by the banks to reimburse chargebacks if there’s not enough money in your primary account. As a high-risk merchant, you’ll have restricted access to these reserve funds, making it difficult to access your own money until all bank fees are satisfied. Not being able to access your revenue can have a major impact on your cash flow.
Are there any merchant benefits to high-risk credit card processing?
Even though it seems rather bleak with so many negative aspects of high-risk credit card processing, there are actually some benefits. Being labeled high-risk may allow your business to have an increased ability for processing card-not-present transactions. This is a big plus when all those online shoppers are buying your products from your e-commerce website. Another benefit to your business as a high-risk merchant account is the potential of global expansion. You’ll be able to accept multiple currencies from countries outside the U.S., Canada, and Europe. This means an overall higher earning potential. Something to consider: will that increased earning potential offset the costs of an increased number of chargebacks, too?
Other privileges of having a high-risk merchant account include:
• the ability to offer recurring payments to consumers (i.e. monthly orders)
• the ability to process more than $20K per month
• the ability to accept $500 or more per transaction
• the ability to sell products and services otherwise not allowed by low-risk merchants
Processors rarely terminate high-risk merchant accounts as a result of excessive chargebacks. You’ll certainly pay higher fees and fines, but you won’t be shut down.
What does high-risk mean for your business?
As your business expands, so does the risk of chargebacks, increased processing fees, and being labeled a high-risk account by the banks. As a result, it’s more important than ever to be watchful of potential hackers, chargebacks, and cybersecurity. Partnering with a professional, third-party financial security company that analyzes and updates your company’s merchant-creditor agreements is one of the smartest moves you can make. The financial experts at Merchant Broker conduct a detailed investigation of your merchant accounts to reveal hidden fees that could be costing your business thousands of dollars.
Merchant Broker’s mission is to protect merchants against unfair fees associated with chargebacks and high-risk accounts. It is also essential for every merchant, low-risk and high-risk alike, to be PCI compliant. The better you satisfy PCI standards, the better protection you have against excessive chargebacks and hackers. Since processing high-risk credit card charges can potentially lead to exposing customers’ financial and personal information and increase the risk of identity theft, you want to avoid PCI compliance issues at all costs.
