Financial Services for High-Risk Online Merchants | Who’s Who and What’s What?
by Sorin Despot
If you are doing business online, your ability to process client payments is essential to your survival. Moreover, your ability to do so quickly and safely is paramount to your success. This is where your acquiring bank can come to the rescue, hooking you up with an online merchant account. With its help and through a good-old payment gateway, you shall forever bask in the glowing generosity of your paying customers. But, wait:
Not All Merchant Accounts are Created Equal
Every single online merchant you have ever interacted with is bound to pay certain fees to process payments. While these charges vary considerably throughout the industry, their fluctuations occur within two price groups, dictated by two labels which place merchants into a couple of generic categories:
You can either be a low-risk merchant, benefiting from decidedly lower fees, or a high-risk merchant, having to support relatively higher prices and, in some cases, an extra dash of regulatory pressure.
For some merchants, being labeled as “high-risk” is a deal-breaker, since high-risk merchant services come with a higher price tag. However, if that price tag fails to put anything but a mere dent into your business margins, you will be surely considering the services of a high-risk payment processor.
Not all acquirers and processors offer high-risk merchant services, since not every financial organization is willing to accept the liability associated with high-risk merchants. Wondering what these esteemed institutions are considering, to grant a business the “low-risk” label wholeheartedly?
How Risky Is Working with a High-Risk Merchant?
To some extent, all business is risky. If it were not so, we would not encounter words such as “bankruptcy” or “liquidation” in the business lexicon. However, here is the thing: in broad terms, it has little to do with your company’s risk of failure, since this particular brand of risk analysis looks mostly into fraud and chargeback potential. Here is why:
The acquiring bank is interested in keeping an excellent record with state legislators and payment method providers, such as Visa and Mastercard. Fraudulent occurrences and high chargeback rates directly attract liability on the part of the payment processing institution, to the extent that it might even lose its license.
How Likely Are You to Experience Chargebacks?
Simply put, the more chargebacks, the higher the risk. While criteria vary from one financial institution to the other, here are the three main aspects that the acquirer/processor will likely evaluate to determine whether an online merchant is high- or low-risk:
- Industry type – Are you doing business in an industry notoriously plagued by high-frequency chargebacks? Here are a few examples:
- Online Gaming
- Software Downloads
- Domain Registration
- Prepaid Phone Cards
- Adult Content
- Tech Support
- Debt Collections
- MLM Business Opportunities
- ISP and Hosting Services
- Health and Wellness Products
- Credit Repair
- Money Transfer
- Region and accepted currencies – Your chances of getting that “low-risk” title are pretty good if you are doing business in a single currency and, at least primarily, in a low-risk region such as:
- The European Union
- The United States of America
- South Korea
- Truthfulness in advertising and business communication – Providers scrutinize what you claim your products or services will do for the customer. Based on your claims, they may feel you promise more than you can deliver and this will cause a much higher instance of chargebacks. Be careful with your claims and make sure your messages get across to your customers.
Risky Business? Yes, Please!
In some cases, merchants intentionally choose high-risk payment processing since it provides certain advantages over traditional processing:
- Increased sales volume allowances
- Additional multi-currency options
- Out-of-the-box recurring billing
High-risk merchants are expected to have high chargeback ratios, so payment processors usually apply a rolling reserve on every merchant account. This reserve can be used by the acquiring bank to offset chargebacks. The reserve grants an additional layer of protection against unexpected behaviors on the merchant’s website.
When running a high-risk business, one of the best solutions to consider is to maintain a relationship with a payment gateway that explicitly addresses high-risk merchants. Twispay will help you identify potential threats, monitor suspicious transactions, fight excessive chargebacks, and manage your risk on a daily basis.