How to Know if You’re a High Risk Merchant

 

Did you know that chargebacks increase by 41% every two years causing more companies to become labeled as “high risk”?

It can be difficult to know if you’re a high-risk merchant, and even more difficult to find information on what this means for your business.

Not being sure if you’re a high-risk merchant can be scary, because it means that your business might not be able to accept credit cards. This could mean losing out on sales and damaging your reputation.

But don’t worry. Keep reading because our article covers everything you need to know about what is a high risk merchant, including the causes of risk and how to avoid them. We also provide tips for working with payment processors and ways to improve your chances of being accepted as a high-risk merchant.

What Is a High Risk Merchant?

A high-risk merchant is a type of business that poses a greater risk to credit card processors and banks. This is typically due to the type of product or service being sold, the industry the business is in, or the business’s history of credit card fraud or chargebacks.

How to Know if You’re a High-Risk Merchant

There are a few ways to know if you’re a high-risk merchant. Let’s look at the now:

1. You Sell High Risk Products

You may be classified as a high-risk merchant if you sell a product or service that is considered to be high risk. This includes things like adult entertainment, gambling, and cigarettes. If you sell any of these products or services, you’ll likely have a hard time finding a credit card processor that’s willing to work with you.

2. You’re In a High Risk Industry

Certain industries are considered to be high risk. These include things like debt consolidation, payday loans, and pharmaceuticals. If your business is in one of these industries, you may be classified as a high-risk merchant.

3. You Have a History of Chargebacks or Fraud

If your business has a history of chargebacks or fraud, you’ll likely be classified as a high-risk merchant. This is because banks and credit card processors will see you as being more likely to default on your payments or commit fraud.

4. You’re a New Business

If you’re a new business, you may be classified as a high-risk merchant. This is because banks and credit card processors will see you as being more likely to default on your payments or commit fraud.

5. You Have Bad Credit

If you have bad credit, you may be classified as a high-risk merchant. This is because banks and credit card processors will see you as being more likely to default on your payments.

What Are the Consequences of Being a High-Risk Merchant?

There are a few consequences of being a high-risk merchant. Let’s look at them now:

1. You’ll Pay Higher Fees

If you’re a high-risk merchant, you’ll likely have to pay higher fees to your credit card processor. This is because they’ll see you as being more likely to default on your payments or commit fraud.

2. You May Have More Restricted Terms

High risk merchants, may have more restricted terms with your credit card processor. This means that they may put a limit on how much money you can process each month or they may require you to keep a higher reserve balance.

3. You May Have difficulty Finding a Credit Card Processor

If you’re a high-risk merchant, you may have difficulty finding a credit card processor that’s willing to work with you. This is because they’ll see you as being more likely to default on your payments or commit fraud.

4. You May Be Required to Use a Third-Party Processor

If you’re a high-risk merchant, you may be required to use a third-party processor. This means that you’ll have to pay an additional fee to use their services.

5. Your Account May Be Closed Without Notice

If you’re a high-risk merchant, your account may be closed without notice. This is because banks and credit card processors will see you as being more likely to default on your payments or commit fraud.

How Can You Avoid Being Classified as a High-Risk Merchant?

There are a few things you can do to avoid being classified as a high risk merchant. Let’s look at them now:

1. Use a Personal Guarantee

If you’re a high-risk merchant, you can use a personal guarantee to reduce your risk. This means that you’ll be personally responsible for any chargebacks or fraud that occurs on your account.

2. Get a Merchant Account

If you’re a high-risk merchant, you can get a merchant account. This will allow you to process credit cards without having to go through a third-party processor.

3. Use a Credit Card Processor That Specializes in High-Risk Accounts

If you’re a high-risk merchant, you can use a credit card processor that specializes in high-risk accounts. This will allow you to get the best terms and rates possible.

4. Improve Your Credit Score

If you’re a high-risk merchant, you can improve your credit score. This will help you get better terms and rates from your credit card processor.

5. Be Prepared to Pay Higher Fees

If you’re a high-risk merchant, you should be prepared to pay higher fees. This is because you’ll be seen as being more likely to default on your payments or commit fraud.

Ready to Try a High Risk Merchant Account

Being considered a high-risk merchant is not necessarily a bad thing. It may just mean that you have yet to establish credit with banks and high risk merchant processing or that you are in an industry that is prone to more fraud.

Either way, there are options for high-risk businesses to get the merchant processing services they need without being subjected to unfair fees and terms.

Want to learn more about what is a high risk merchant account? Check out our blog for more articles like this.