Processing Credit Cards in a High-Risk Industry
Credit card processing for high-risk merchants can be difficult due to the greater potential for chargebacks, fraud, and reputational issues associated with these types of businesses. In this blog post, we will discuss what high-risk industries profit, how processing works for these industries, and the ways to navigate around these multifarious credit card processing risks.
Many industries are considered high-risk. These include, but are not limited to:
- Alcohol and Tobacco Sales
- Adult Entertainment/Adult Industries
- Firearms Sales
- Gambling Sites
- Fantasy Sports
- High-Volume Merchants
Why are industries considered high-risk?
Let’s look at the adult industry, for example. This industry has a high chargeback rate due to paranoid customers worried about being charged for pornographic material, which is often erroneously reported as fraud. Or, perhaps they were simply dissatisfied with the product and wanted their money back; this is also known as a “chargeback” or “return-to-source transaction.” High chargeback rates and fraud payments are an easy way to distinguish high-risk classifications.
Another facet of risk from our example comes from reputation. Banks do not like to provide processing accounts for sites and/or businesses that may not be employing proper legal documentation practices, safety procedures, and regular employment processes. Banks can also simply say, “this would look bad,” and not take on the business for that reason alone. Regardless, reputation risk can play a big part in credit card processing. Another example of reputational risk can be seen with marijuana businesses. Although the cannabis industry is generating more revenue than ever before, reputation plays a big part in its high-risk credit card processing classification. This is because banks are worried about being held liable for money laundering activity. Although this may seem unlikely, the fear alone pushes many to take a pass on cannabis businesses as clients.
What is a high-risk merchant account?
A high-risk merchant account is a credit card processing solution for merchants in high-risk industries. These accounts are reserved only for businesses that fall under these categories and typically come with higher rates, monthly fees, annual PCI compliance requirements, etc. The big difference between regular merchant accounts and high-risk credit card processing ones is that the latter is usually implemented via a third-party payment processor. High-risk merchant accounts are necessary for high-risk businesses because they offer more protection against fraudulent transactions, chargebacks, and other credit card processing errors. This makes them ideal for companies who find themselves in the high-risk category
How do high-risk merchant accounts work?
When a business decides to open a high-risk merchant account, they will need to provide some basic information about their company to the processor. This includes things like what type of products or services they offer, how much revenue they generate each month, what the average ticket size is. The processor will use this information to determine the potential risk level of the given business. If it is determined that there may be a high risk factor, they must also provide some more documentation. It’s important that these merchants be honest and upfront about their information in order for the processor to accommodate all of the company’s needs.
Ultimately, high-risk credit card processing should be handled by a third-party qualified to deal with the various risks associated, like SeamlessChex: a business that specializes in providing payment solutions for high-risk merchants!
Connect with a SeamlessChex employee to find out if a high-risk credit card account is right for you!