High Risk Merchant Accounts & How You Can Manage Them

Being labeled a high-risk merchant account isn’t easy. For starters, this label comes with a negative connotation about your business, and assumes you aren’t running a reputable company with good products or services. In layman’s terms, a high risk business is one that banks and credit card processing companies consider risky. Sometimes this is because of ties to your previous businesses, and other times, it can have more to do with the industry you’re in. What’s important to understand is that this isn’t the end of the road for you.

There are many ways you can continue running your business through partnerships with high risk credit card processing companies. Typically, these companies work exclusively with high-risk merchants who aren’t able to get a traditional processing agreement. Because of this, they can often be the light at the end of the tunnel for entrepreneurs who feel they’ve exhausted their options.

Understanding The High Risk Merchant Label

To take the best steps towards being a better business, it’s important that you understand what high risk really means for you and why you were put into that category in the first place. Understanding why makes it easier for you to fix moving forward. Here are some reasons you might be labeled as high-risk:

Too Many Chargebacks: A chargeback is when a bank initiates a refund on behalf of their customer after a complaint. A customer might complain if they’ve never received their product, have an issue with their product, or believe a business falsely represented what they offered.

Low Credit Score: As with any type of business or governement agreement, your credit score matters. A credit score that’s too low will raise red flags for banks and processing companies. You may be able to circumvent this with a cosigner who has a high credit score.

New Market: If your business is in a new or evolving industry, you may have trouble getting approved for credit card processing. The cannabis industry is a good example of this.

New to Payment Processing: If you don’t have a payment processing history, credit card processors may opt to hold back until you do. This type of high-risk label can be alleviated with a steady track record. Once you’ve deemed yourself reliable with a high-risk processor, you can re-negotiate or move on to a standard pocessor.

Risky” Market: Being relegated to the high risk merchant categories sometimes happens only because of the industry you’re in. Adult services and travel businesses are examples of industries that credit card processors deem risky, even if you have a solid track record when it comes to personal credit and business credit.

Managing The High Risk Label

So you’ve been labeled a high risk for one of the reasons above. The first thing to understand is that this isn’t a lifetime label. Don’t worry; rather than consider this a blockade, just think of it as having to undergo a few extra steps before you can start working with traditional processors. The key is successfully managing your business and proving your reliability.

To do this, you have to be careful that there are no chargebacks, which is the most telling sign of a high-risk merchant. High risk merchants have to work a little harder than the average business owner to avoid issues that are common to any entrepreneur, but look bad on an already-labeled business.

One way to avoid chargebacks to provide exceptional customer service. You’d be surprised at the level of patience a customer can have if they communicate openly and honestly. Inaction from the business is a major reason many customers contact their backs to cancel a charge. When that customer can speak with a human regarding their product order or service, they’re less likely to take any actions that harm your business.

Keep customers updated on what’s happening in your business. For example, let’s say you own an ecommerce business that handknits clothing and blankets. You put out a few Facebook and Instagram advertisements and suddenly, hundreds of orders are placed and you don’t have the product to fulfill it.

This is where you would reach out to everyone who ordered and humanize your situation. You could let your customers know that you are graciously overwhelmed by their support, and need additional time to handcraft the products due to a large volume of unexpected orders. This level of transparency may feel unnatural for some business owners, but it goes a long way towards creating an authentic brand and building credibility with your card processor.