As the quantity of digital payments continues to climb, more and more companies are searching for affordable payment processing options. In actuality, only 19% of consumers still favour making payments in cash.
Although the majority of payment service providers cater to a wide range of industries, there are always those businesses that they are a little more wary of. These frequently come under the category of high risk payment processor, which by definition have higher fraud and chargeback risks.
If your company is considered “high-risk,” it could be difficult for you to find the ideal payment processor. But who decides whether a company is high-risk? And what elements influence risk? We’ll clarify all of this for you in this post, putting you in a better position to choose the best payment processing partner for your company’s requirements.
What Is a High-risk Merchant Account?
A high-risk merchant account is necessary for businesses that are considered to be “high-risk” in order to accept debit and credit card payments. A high-risk company is one where there is a higher chance of chargebacks or fraud (and certain other characteristics as well).
In contrast, there is no centralised organisation or framework in the payments sector that assesses the risk considerations related to a company. Each bank and payment processor, however, has its own set of requirements.
Some vendors of payment solutions might be out forward about the industries they don’t support. Others will frequently look for specific details about a company to assess risk, based on which their application may be approved or denied. In the end, everything comes down to a payment processor’s internal standards and perspective on risk management.
How Do High-Risk Accounts For Payment Processors Differ From Regular Accounts?
Being classified as a high-risk company can seem very intimidating. Your application can just be rejected by a processor. However, a payment processor may decide to enforce specific regulations in order to reduce the risk that your organisation carries.
There are numerous approaches for a payment processing business to reduce risk. These key distinctions between high-risk and standard merchant accounts are likewise made by these.
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Protracted application process
When you apply for a high-risk merchant account, a merchant services provider could request extensive information in order to assess your risk profile or examine previous financial trends. Payment processing firms frequently investigate your company’s processing history, alliances, and even your personal credit history (to watch out for bad credit, etc.).
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Higher processing fees for payments
Payment processing costs for typical small businesses may be 0.3% more than the interchange rate. However, this might increase to 1.5% plus the interchange fee for a high-risk merchant account. Although interchange costs may vary from business to business, increased risk generally entails higher fees.
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Increased chargeback costs
Businesses must pay chargeback costs to their payment processor while processing refunds. These fees could be greater for companies with a high chargeback ratio to cover the potential risks of excessive chargebacks. These prices could range from $20 to $100 per unit. Clothing brands and other companies with high chargeback rates can consequently experience pressure.
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