How to Get a High Risk Merchant Account without Getting Ripped Off

A number of factors go into assessing what level risk you might represent to a credit card processor and bank. This post will help you avoid wasting your time searching for the right provider and how to avoid getting ripped off.

Any high risk merchant processor you contact is going to immediately try to assess where your business falls on the risk spectrum

What does it mean to be considered “High­Risk”?

The term high­risk certainly sounds X­rated. And quite frankly, some of it is. But companies that sell high quality how­to information or health supplements, for example, frequently find themselves classified as high risk. Why? Liability due to chargebacks is at the top of the list.

Your business may hit on one or more of the following categories that could put you into the high risk category. The more categories you hit the greater the risk you present to your merchant processor.

These categories include:

  • Product or service you sell
  • The product claims and guarantees you make to your potential customer
  • Brand damaging, reputational risk (bank and/or processor not wanting to be associated to your company due to type of product/service you sell. Simplest example is a processor/bank not wanting to provide services to adult entertainment businesses)
  • Large average transaction size ($100 unit sale vs. $10,000 unit sale. Bigger unit sale = bigger risk)
  • Custom products or Special Order
  • Event sales / Product Launches
  • Previous processing history ­ high chargeback ratios
  • Annual billing, multi­year billing (e.g. subscriptions, warranties, etc.)
  • Future delivery services (billing today for service to be delivered over 1 year)
  • Return guarantees (lifetime guarantee ­ open ended liability)
  • Spike sales (most of your sales happen in short period of time ­ e.g. event sales, webinar sales, product launches. Chargeback/return exposure can be very high)
  • Free trial ­ negative option billing ( automatic billing unless you opt out ­ cancel)
  • Poor Personal Credit or Business credit issues
  • Large requested monthly sales volume where business does not have financial ability to support such volume

The problem with being “High Risk”

If you’re a high risk merchant it is vital that you work specifically with a provider that specializes in high risk AND that has experience in your industry. If they understand your industry you’ll get more favorable terms. Working with a low risk processor that doesn’t understand your business means they’ll be quick to hit the red destruct button the moment you do something out of line. They’ll freeze your account and hold your money, which can easily and quickly put you out of business.

My goal is not to turn you into a merchant account underwriting expert but rather understand how merchant account companies view you and your business. Underwriters are trying to assess the risk of potential loss and ensure they have the appropriate collateral to cover any potential losses. The better you understand this the easier it’ll be for you to properly position your business to get the most favorable merchant account terms.

Make sure you work with a company that has been around a few years (at least) and has a solid BBB rating. These are good first indicators that you’re working with a company that can be trusted.

Avoid going offshore if possible. It’s not to say that offshore processing is bad but rather it adds complexity to your business. If done correctly it can be good. But you’ll be required to establish a new company in the jurisdiction of that processor as well as other hoops you’ll need to jump through. It’s hard to know who the good offshore processors are from the bad ones. Another big problem you’ll find is if most of your customers are in the U.S. and you’re using an offshore processor you’ll likely have problems with increased declined “do not honor” transactions. This is due to a foreign bank running U.S. transactions. Something to look out for. Try to stay domestic if at all possible.

Need help with your merchant account? Give us a call at 1 855 302 4325 or submit a request here and someone from our team will be happy to answer your questions. No obligation…no salesy stuff.

You can also download The Ultimate Merchant Account Success Guide for High Risk Merchants by clicking here

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