Why Is a Business Considered High Risk?

You hear it a lot but you never fully understood that idea of a high-risk merchant account until your business was tagged. In the highly competitive world of business, there are industries that the banks believe pose a greater risk than others. But what exactly makes a business considered high risk?

Factors That Make a Business High Risk

Business Tenure

Most financial institutions will base the credibility of a business on the length of time it’s been in operation. As a new business owner, you can expect traditional lenders and banks to shy away from building partnerships with your company since you haven’t established yourself yet.

Does that mean that the future of small businesses involves high-risk merchant accounts? At least for new businesses, yes, it does.

Nature of the Business

Some industries are considered high risk simply because of the nature of the business. For instance, merchant accounts for adult entertainment are considered high risk due to the level of uncertainty involved. Some of the most popular high-risk merchants include bail bonds and travel services as well as online auctions and dating websites.

Card-Not-Present (CNP) Transactions

This is one of the most common reasons businesses are considered high risk because there’s a higher risk for payment fraud if you don’t see the physical credit card when processing payments. This is why the credit card security code matters when shopping online.

Your business could operate solely online or it could be a company that processes transactions from all over the world. Catering to CNP transactions will instantly tag you as a high-risk merchant.

Personal Credit

Yes, financial institutions will also look into your personal and business credit score before you are granted funding or support for your payment processing needs. Make sure you’re working towards paying off any pending personal debt and take the appropriate measures to improve your business’ credit rating.

High Chargeback Rate

Ideally, a merchant would work directly with the customer to resolve any concerns or issues. That’s not always the case, however. 

Whether a customer is unhappy with the way a merchant handled the situation or if they simply didn’t know the difference between a chargeback and a refund, chargebacks are inevitable. That doesn’t mean they’re any less tedious to deal with.

A customer can file a chargeback for a variety of reasons ranging from dissatisfaction with the product to an unfamiliar charge on their credit card statement, among others.

Unfortunately, too many chargebacks can lead to account suspension or even cancellation, so you want to make sure to keep that number low. With exceptional customer service and a few chargeback prevention tips, you can maintain a low chargeback rate.

Solutions for Businesses Considered High Risk

There are several challenges high-risk businesses face, that’s for sure. But if you work hard enough and implement effective strategies, that business considered high risk may qualify for a standard merchant account in the future.

As a business, it’s your responsibility to know the things that make it high-risk and what you can do to get approved for a merchant account. Partner with a reputable payment processing provider so you can provide convenient and secure payment gateways for your customers.

Contact us to learn more about the services we offer and save 25% when you sign up for a new merchant account today!