In general, merchants offer products and/or services in exchange for payment from customers, be they consumers or other businesses. The vehicles for merchants receiving payments include (in various forms of packaging); coin, currency, checks, wire transfers, electronic funds transfers, charge cards, internet transition processors (PayPal, Square, Wise, etc.), and Person 2 Person processors (Venmo, Zelle, etc.). Each payment gateway has inherent risks, costs, liquidity constraints and accessibility hurdles for the customer, merchant and transaction processor.
To understand this impact of risk on merchants, let’s first look at payment gateways from the perspective of customers and payment processors. Customers generally want a good quickly, easily and safely. Of the payment gateways listed above, by far, the largest volumes are in charge card transactions. This is generally easy to process and has the most avenues of recourse for the customer not be satisfied or demand a refund.
Transaction processors encounter unique risks with each transaction type but the transactions with the largest potential for chargebacks due to fraud or disputes are with charge card transactions. These processors are compensated for the time and effort of transferring funds by per transaction charges, dollar volume upcharges (a percentage charge on dollars transacted) and/or income derived by investing funds in transition before being made available to the endpoint merchant.
High risk merchant accounts often erode conventional transaction pricing structures either because they attract customers involved in credit fraud, have a customer base that regularly dispute transactions due to buyers’ remorse or Have sales cycles that are more prone to buyer’s remorse. Sin markets such as the sale of tobacco, liquor, gambling and other adult services are often categorized as high-risk credit card processing and charged a premium. Ecommerce merchant accounts and bad credit merchant accounts (where the merchant is in jeopardy of filing for bankruptcy), are also categorized as high-risk merchant accounts.
Merchants serving customers with volatile transaction patterns or that are facing a challenging financial landscape generally seek out the services of transaction specialists who offer high risk credit card processing with tailored risk limiting solutions at affordable rates and reasonable fund availability schedules. These specialists often offer sophisticated transaction approval systems that offer the high-risk merchant account instant approval as transactions are entered and processed on the spot.
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