If you are starting a company that belongs to an industry with a bad reputation of fraudulent payers and high chargebacks, you might be in a rude awakening. Payment processors can automatically tag you as a high-risk merchant, which is not an excellent designation. Having a high-risk merchant account means that you do not qualify for traditional credit card processing agreements. Only a few payment processors are willing to accept the risk of doing business with you, so you might have to pay higher fees due to the lack of better options. But high-risk card processing is sometimes misunderstood. To know it better and negotiate for lower prices, let us debunk the common myths about it below:
1. “High-risk” Is an Objective Term
High-risk credit card processing has a lot of gray areas, and the operative word “high-risk” does not always carry the same meaning. It is possible to find a payment process that labels you “high-risk” and another that does not look at you as such. This reality is because the risk departments of different providers can have different underwriting guidelines. Therefore, if the first company that you approach declines to create a regular merchant account to be used for credit card payments, move on to the next. Shopping around can help you compare fees and possibly achieve a “low-risk” status.
2. The Business Owner’s Credit Score Defines Your Risk
No, the personal credit score of a business owner does not dictate the risk level of a merchant account. Yes, payment processors might be interested in the credit standing of the primary person behind the organization, but they care about the industry’s history of fraud more.
3. Nothing Is Good About High-risk Merchant Accounts
There is one positive thing about high-risk merchant accounts: leniency. If you operate in a fraud-heavy industry, a payment processor will no longer be surprised to know if your company sees chargeback rate fluctuations monthly. Even if a high-risk payment processor does not terminate your account quickly for experiencing excessive chargebacks, it is essential to have a long-term fraud strategy to prevent disputes. After all, your card processing company can penalize you for accepting fraudulent payments. Your agreement can give your card processor the power to freeze some of the funds in your merchant account, which can provide your company cash-flow problems and take away your privilege to receive credit card payments.
4. High-risk Merchants Are Always High-risk
No, nothing is set in stone. Opinions change, and it is possible to temper doubts that your company is more of a liability than an asset to your acquiring bank, the very entity that processes your credit card transactions. Some of the things that you can do to keep the number of chargebacks to a minimum are operating in safer regions, like North America, East Asia, or the European Union and accepting only one currency.
You can’t control all factors that can lower your risk level as a merchant, but it is imperative to keep those that you can in check. If you take the necessary steps to convince payment processors and acquiring banks that doing business with you will not give them headaches, you can operate anywhere in the world and absorb smaller fees for credit card transactions.
