The words “high-risk business” can make someone think that a business is in the practice of selling questionable items. While certain industries get flagged as high risk in the merchant account industry, companies in these industries are not necessarily selling products someone would consider questionable. What’s being sold is often straightforward and won’t raise any eyebrows.
Essentially, the meaning behind a high-risk merchant account description is more than meets the eye. Find out why many companies get the high-risk label.
What Businesses Fall Under the High-Risk Category?
Image via Flickr by 401(K) 2013
The most obvious types of businesses considered high risk are adult merchandise and electronic cigarette device vendors. But these businesses join other businesses that include the following:
- Collection agencies
- Online-only businesses
- Mortgage service providers
- Credit counseling services
- Car rentals
The businesses listed above are some of many that get classified as requiring a high-risk merchant account for processing credit cards. What do all of them have in common? They attract customers who may buy merchandise with stolen cards, or these businesses have a high number of chargebacks from customer dissatisfaction or fraud.
The Common Issues That Result in a High-Risk Label
A business has the right to sell its merchandise as long as the products sold are legal. Some businesses, such as subscription or membership-based businesses, process credit cards once a month. Others sell popular in-demand products. Additionally, some may have no physical storefront for a customer to visit, selling their merchandise online only. All of these types of businesses share the risk factor of increased chargebacks.
Credit card holders have the right to start a chargeback on any product or service that does not meet their satisfaction. The card-issuing bank initiates a refund from the business in question and recovers the money for the customer.
All merchant account providers recognize that every business will experience a chargeback or theft at one point or another. These providers tend to overlook the occasional occurrence. However, they don’t overlook regularly occurring chargebacks or fraud. As a result of this activity, the business and the nature of its merchandise gets reclassified as high risk, along with the increased potential for account closure.
Is It Possible to Avoid Being Labeled a High-Risk Business?
A low-risk merchant account provider will rarely decide to reclassify a business. To these types of providers, dealing with the hassles that come from frequent chargebacks and theft are not worth the effort. The best solution for a business in this situation is to open an account with a high-risk merchant account provider to avoid problems from the beginning.
A high-risk merchant account provider understands the problems that come with certain industries and won’t close an account without warning. In this case, the business receives the benefits of accepting credit cards, and customers can keep returning for a no-hassle transaction.
A high-risk label doesn’t necessarily mean that a business engages in questionable or deceptive business practices. High-risk merchant account providers can look beyond some of the challenges these businesses face when providing merchant account services.