E-commerce businesses rely on credit card processing to complete transactions and facilitate growth. However, many e-commerce businesses face rejection from traditional banks and low-risk merchant service providers. This occurs because banks categorize these businesses as high-risk, making it difficult for them to secure reliable payment processing solutions.
Understanding why e-commerce companies get rejected can help business owners take proactive steps to secure the right merchant account. This article explores the common reasons banks hesitate to work with e-commerce businesses and how high-risk merchant service providers can offer solutions.
1. The Risk of Online Theft and Fraud
Why Is Theft a Major Concern?
Processing a credit card online relies on two methods: address verification and card value verification. The latter refers to the three numbers on the back of the card. Credit card processors have used these methods for e-commerce sales for some time, but these sales are not as secure as before.
E-commerce businesses have limited ways to ensure that a card is not stolen. The only option is to use theft detection systems at the card processing and issuing bank levels. The best merchant account for e-commerce companies may have a harder time obtaining a merchant services account once the switch to EMV cards takes place.
Low-risk merchant account providers aim to minimize financial risk. They implement measures to lower their exposure to accounts that may involve stolen credit cards. While some providers accommodate occasional spikes in high-volume sales, a significant increase in chargebacks or average ticket price may not be tolerated.
If a provider notices an unusual spike in chargebacks on a website, the provider can close the account without warning. As a result, a business may be unable to accept credit cards, potentially damaging its reputation.
2. Lack of a Physical Storefront
E-commerce businesses do not operate from a physical location where customers can visit in person.
Without a physical storefront, businesses cannot accept credit cards in person. Instead, customers provide their card details over the phone or through a secure web form. From the perspective of card issuers, theft risks remain higher for this type of sale.
Another challenge is the perception that e-commerce businesses lack a community presence. Banks may view companies without a walk-in location as unstable and potentially unreliable.
Low-risk merchant service providers tend to avoid risk. These providers may be reluctant to offer a payment service account to businesses without a stable physical location, even if the e-commerce
operation is based in a home office.
3. High Chargeback Rates and Financial Instability
Why Won’t Some Providers Open Accounts?
E-commerce companies, regardless of size, can be categorized as high-risk businesses by banks and merchant service providers. This classification can impact their ability to secure payment processing and payment gateways, leading to several challenges:
- Dependence on high-cost third-party card processors, as they cannot process card payments independently.
- Inability to process debit and credit card payments on their website, leading to customer loss.
- Declining profits due to a limited market reach, ultimately affecting business growth and sustainability.
Theft also plays a role in determining whether a merchant services account is granted to an e-commerce business.
The ongoing transition to EMV chip cards has made it more difficult for thieves to access credit card number databases and create counterfeit cards for in-store use. EMV chip cards feature a microprocessor that enables a verification system readable only between a store terminal and the card-issuing bank.
Since EMV chip cards cannot be processed through an EMV card reader without the physical card, the risk of theft in physical stores has significantly decreased. However, this security measure does not apply to online shopping, where all transactions occur digitally. As a result, card issuers and processors anticipate an increase in online card theft despite the shift to EMV chip technology.
How High Risk Pay Can Help
Overcoming Merchant Account Challenges
Securing a merchant services account to accept credit cards remains crucial for e-commerce businesses. However, business owners who are unable to obtain an account through low-risk merchant service providers can turn to high-risk e-commerce merchant account service providers for assistance.
High Risk Pay offers specialized solutions to businesses facing challenges in obtaining a credit card processing account. The company provides merchant accounts to e-commerce businesses that cannot secure approval from low-risk providers. High-risk merchant accounts function similarly to low-risk accounts but come without the stress of sudden account closures.
High-risk merchant account providers like High Risk Pay are experienced in managing risks associated with e-commerce operations. The company acknowledges that chargebacks and theft are inherent to online business transactions. Despite these risks, the majority of e-commerce sales are legitimate, and most customers seek to purchase goods and services honestly. Denying businesses the ability to operate due to fraudulent activity from a small percentage of individuals would be unfair to both merchants and their customers. High Risk Pay implements fraud mitigation strategies to help businesses prevent financial losses.
What Makes High Risk Pay the Right Choice for Your Ecommerce Business?
High Risk Pay is committed to supporting e-commerce businesses in expanding and thriving in the digital marketplace. The company enables business owners to accept credit card payments securely while implementing robust fraud detection systems.
For e-commerce businesses that have faced rejection when applying for a merchant account, High Risk Pay offers a reliable alternative. The company provides competitive rates and swift approval processes, ensuring that businesses receive the support they need to operate profitably. High Risk Pay works directly with its customers to offer tailored solutions for secure and efficient payment processing.