Being labeled as a high-risk business or high-risk industry type can be devastating for any organization. Some payment processors target their marketing toward high-risk businesses. But when signing up with them, you are faced with ridiculously high processing fees and contracts that pose a liability if ended early. That’s why knowing what makes a business high-risk beforehand and avoiding such merchant account providers is extremely important for a business’s health. Here are some key factors that can get your business flagged as high-risk:
Location – Some places are considered risker as compared to others. There are two primary ones. The first one is home-based business. Such businesses are generally considered high-risk because they are more likely to fold as opposed to brick-and-mortar businesses. The second place that classifies your business as high-risk is if you work in a foreign country. These risk factors are the primary aspects most payment processors take into consideration.
Industry – Industry in which your business operates plays a huge role in whether or not you are considered high-risk. The acquiring banks or card networks make this decision by checking the historical processing data from the entire industry, not just your specific business.Following are some examples of high-risk merchant account industries:
- Travel Merchant Accounts
- Nutraceutical Merchant Accounts
- Credit Repair Merchant Accounts
- Student Loan Merchant Accounts
- CBD Merchant Accounts
- Debt Consolidation Merchant Accounts
- Debt Collection Merchant Accounts
- Timeshare Advertising Merchant Accounts
The Products You Sell – Certain products are deemed high-risk by payment processors and merchant account providers due to the rules and regulations around them. One example of such products is marijuana paraphernalia. The businesses selling such products have been fined or, in some cases, shut down. An important thing to note is that your business doesn’t have to be centered around a high-risk product category in order to be considered high-risk. For instance, a convenience store would generally be seen as a low-risk business, but if they decided to stock even just one high-risk product (e.g. Cannabis Merchant, etc.), it springs the entire business into a high-risk category.
High Chargebacks and Frauds – This particular reason for being flagged as a high-risk business sometimes doesn’t have anything to do specifically with the company. Suppose a certain industry or sector has a high rate of frauds or chargebacks historically. In that case, there is a high chance that your business will also be flagged as high-risk. This is more due to the behavior of the consumers then the company itself.
How Long You Have Been in Business – If you are a new business, then no matter how good your products or services are, you are probably going to be considered high-risk. Payment processors and banks like things to be calm and settled, tried and tested. If you are a new business, then there is no data for the payment processor or bank to base their decisions on. So, you will be considered high-risk.
Expensive Ticket Sales – Banks and other financial institutions are concerned about expensive ticket sales and monthly volume projections (e.g. more than $50,000 monthly for a new business). For instance, if you sell an online business coaching package for $10,000, you are considered high-risk.
Unorthodox Strategies of Marketing and Sales – A few businesses in virtually every industry are often scams, and there is a wrong impression on people based on their experience with such companies that had some similarity to yours. So, based on such perception, the merchant account provider may consider your business as high-risk.
Bad Personal Credit Score – If you are a business owner with a bad personal credit score, then payment processors will likely put you in the high-risk category. This is because a good credit score is an indicator that you manage your money well. A bad or low score means higher risk.
Your Merchant Account History – Your merchant account history matters a lot. If you have been with other merchant account providers and things haven’t gone well, then your business will be considered high-risk. This is because a business changing merchant accounts frequently is a red flag for payment processors. It makes them question why you are always changing.
Closing Thoughts – These are some of the key factors that can get your business flagged as high-risk. Being high risk certainly makes things difficult for the merchant, but it isn’t the end of the world. Numerous high-risk businesses are still functioning and even growing and prospering. If any of the factors listed above apply to your business, then it is highly recommended that you look for a reliable high-risk merchant account provider that specializes in your specific industry.
ABOUT THE AUTHOR
Author: Mark Sands, the co-founder of High Risk Merchant Account LLC, is an authoritative expert in the high-risk merchant account space. Mark has decades of experience in the payment processing industry & enjoys writing on entrepreneurial-related topics. More information here.
