Certain types of businesses are considered high risk when it comes to merchant accounts and credit card processing. There are several different factors used to determine when a business is deemed high risk, largely based upon the types of products and services they sell and how they sell them.
For instance, many online transactions are considered high risk because there are increased risks of fraud because EMV chips cannot be used to make transactions more secure.
What Businesses Are Considered High Risk?
A key factor used to determine the risk of a business is the likelihood of chargebacks, which can include customer refunds and fraudulent transactions. High risk credit card processing service providers assess this risk to determine the percentage of chargebacks your business is likely to experience.
The vast majority of businesses that are considered high risk fall into market segments where they take advanced payments, like travel agencies or ticketing services for various events, or are considered a “gray” area business. “Gray” area businesses are those that take advanced payments for subscription services or entertainment, like adult websites, online casinos, and retailers selling “replica” clothing.
Other types of businesses considered high risk can include:
- Online Dating Services
- Online Prescription Services
- Herbal and Dietary Supplement Retailers
- Liquor Sales
- Tobacco/E-cig Sales
- Subscription Services (Video on Demand, Books, Magazines, etc.)
- Debt Collectors
- Online Auction Sites
- Telemarketers
- IT Services (Web Hosting, ISP Services, Technical Support, and so on)
Aside from the type of industry, two other important factors used to determine the risk of a business are the credit rating and the time in business. Newer companies, even with a decent credit rating, are typically considered high risk. However, with a good credit rating and established business, it is possible to sometimes move from the high-risk classification to a “normal” merchant account classification.
Part of what your high risk credit card processing provider will look at to determine if you qualify to be moved to a lower risk classification is the number of chargebacks you have had in the past. If these are relatively low, then they might decide to reclassify your rating.
Why Do I Need a Merchant Account if My Business Is High Risk?
Merchant accounts are necessary if you want to accept debit and credit card transactions. While there are other online pay services, the percentages charged by these is normally more than you would pay with a high-risk merchant account. When shopping for merchant providers, make sure to review the fine print on the proposed contract. Carefully read through it, notate any areas where you are not sure what they mean, and ask the provider for clarification.
Keep in mind, the number of reliable and trustworthy high risk credit card processing providers, like those here at Leap Payments, is small compared to the number of firms that will take advantage of you. To learn more about our merchant accounts and related services for your business, please feel free to contact us at (800) 993-6300 today!
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