Business models are vast and varied. There are small businesses and those that have global expansions. Regardless of status, each industry needs a payment processor and financial accounts. This article explores what makes a business high risk to these providers.
High Risk Merchant: An Explanation
A high risk merchant is one that, on paper, has a raised contributory risk calculation as per the payment processor. This can pertain to a number of things, as explored below. The consequences of being a high risk merchant include elevated processing fees for payments, imposed lengthened contracts, additional costs, and even, in some cases, a reservation of income. If a company has been offered a high risk merchant account, there is usually one or several reasons as to why. These are explored below.
The Business is New
With a new business, there is no profile or trajectory to assess. Therefore, there is an automatic assumption on the part of the payment processing affiliate, of potentially negative impact factors. This is not a universal blanket thing, and every new model is assessed case-by-case. However, should the company be in its infancy, there is an elevated chance that it will be branded high risk; therefore, it is best to plan for this outcome. The only way around this is to prove your growth and reach your company targets, goals, and financial milestones. As these milestones are met and as the company develops, the assumed risk naturally decreases or increases in line with what is presented.
The Business Owner’s Record
This point addresses two factors. Firstly, the credit profile of the owner, and secondly their track record and past business decisions or successes. Inevitably, a poor credit score and history will lead to higher rates and being branded a high risk merchant as it shows a lack of financial management necessary for monetary security.
Along this line, any previous business endeavors must be disclosed or will be discovered. If these have flopped and failed any associates will observe all reasons behind this failure. Should the reasons prove to be consistent and current, an automated high risk status will be awarded. Solve this through improving credit profile and working consistently to combat future fall-downs that may cause a business to shut down.
The Business Industry
Specific industries are branded more hazardous than others. Any company in certain lines of work will be forced to accept a high risk merchant account as it is the smartest business decision for the provider. To meet these criteria, the business in question will be one of the following:
- Gambling and betting
- Subscription-based payment ventures
- Travel industries (holidays, flights, etc.)
- Vape businesses
- Anything related to the adult industry
These categories will remain high risk merchants for as long as deemed necessary by providers and, therefore, there is no solution.
This list is not exclusive, and more criteria exist to dictate which status a business receives. How customers engage and interact is also a major factor. Sometimes there is a solution; other times, it is just a part and parcel.
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