What makes a business eligible for low risk or high risk credit card processing? Well, we’ll discuss that in a moment.
Payment methods are multiplying, but credit cards will still be big in 2020 and beyond. So businesses looking to start processing card payments should understand what’s high-risk and what qualifies as low-risk.
Card companies, banking institutions, and other service providers like merchant account providers who are vital to your card processing activities decide who qualifies as low-risk or high-risk based on specific criteria.
Generally, businesses classified as high risk are those that these institutions find it risky to partner with— in terms of the liability assumed.
So the selection criteria for most card brands and banking institutions and merchant account providers revolve around things like;
1. Type of Business
These underwriters have specifications that define different types of business from low risk to restricted, prohibited, or high risk.
The business type is determined by the product or service a retailer trades in, business model, or the unique payment processing needs of the business.
Some of the businesses that classify as high-risk or restricted deal with auctions, traveling, affiliate-marketing, e-cigarettes, card-reading, and many others.
2. Business Model
Some companies categorize as risky because of the downsides in their business models.
Any company that; offers a long-lasting warranty, delivers orders late in future or initiates multiple CNP (Card not present) payments pose a significant amount of risk to the underwriters.
3. Type of Product
Dealing with regulated products like e-cigs and tobacco, guns, medical cannabis, and any adult entertainment business makes your business risky.
The same is true if whatever you sell is prone to returns, reverse charges, and scams.
Regulated products are tricky because laws vary by state, and age-restrictions can cause serious problems.
4. Processing background
Many times, regardless of whatever you sell, business type, or model, a company can be classified as risky its processing past.
If your records are full of chargebacks and returns, a poor credit rating, and many other trends that threaten your underwriter’s bottom-line may have you categorized as risky.
Credit card processing is possible even for high-risk companies—only at a relatively higher fee than low-risk processing.
But it is a risk worth taking because the ability to transact card payments exposes you to a broad audience of customers who’ve been waiting to see this payment option added to your store.
Author Bio: Blair Thomas has been a music producer, bouncer, screenwriter, and for over a decade, the proud Co-Founder of eMerchantBroker, the highest-rated high risk merchant account processor in the country. He has climbed in the Himalayas, helped risky businesses set up high risk credit card processing, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.