Are You a High-Risk Merchant?
Risk and reward often go hand in hand. By taking bigger chances, you can usually expect a higher potential payoff.
Unfortunately, this relationship doesn’t always hold true.
When it comes to payment processing, for example, higher risks don’t translate to higher rewards — at least not for the merchant. There’s no corresponding benefit if your provider deems you a high-risk prospect. You’ll simply be stuck paying larger fees.
What goes into these assessments? How do processors actually determine your risk level?
Common Red Flags That Might Place You in the High-Risk Category
It’s not always easy to determine if you’re a “high risk” merchant or not. Payment processors use a lot of variables. Some of these criteria are obvious; others are difficult to determine on your end.
Below are some of the most common red flags that could single you out:
- Foreign country risk: All things being equal, domestic businesses typically receive the most attractive rates. If you're incorporated outside the credit card processor’s territory, expect to pay slightly higher prices for payment processing.
- Credit score risk: A history of delinquent or missing payments could negatively impact your ability to avoid high processing fees. This shouldn’t be that surprising. After all, banks also look at customers’ credit histories when setting fees for consumer plastic as well.
- Industry risk: Some industries and sectors face higher risks than others. If you manufacture cigarettes, certain chemicals or handle hazardous materials, for example, you’ll likely end up with higher processing fees.
- Litigation risk: There are some business models that are prone to litigation and customer complaints. Get-rich-quick schemes are one obvious target, but you might also be singled out if you sell weight loss products, vitamins and supplements, or beauty enhancements.
- Payment environment risk: Regardless of the industry or product, your processor might deem you a high-risk candidate because of how your payment environment is set up. For example, card-not-present fraud is a real concern for legitimate businesses that process orders via phone or mail. The same is true of recurring billing since future payments don’t always benefit from real-time verification measures.
What to Do if You’re a High-Risk Merchant
Fortunately, many of the above risk triggers are within your control — i.e., you can fix them. For example:
- If you’re incorporated outside the U.S., consider setting up a satellite office within the U.S.
- If your credit rating isn’t great, work on improving it using these proven strategies.
- If your payment environment is prone to fraud, consider investing in PCI-compliant processing that requires more authorization steps.
Yet even if you do make improvements, many processors will resist recategorizing your business in a different risk bracket. After all, higher fees from you means more profits for them — that’s assuming it’s even possible to make merchant-side improvements from your end. Depending on the nature of your business, industry or clientele, you might always be considered a high-risk prospect, no matter what.
Does that mean you’ll also always be stuck paying higher fees as well? Not necessarily.
Can You Pay Lower Fees as a High-Risk Merchant?
It’s not always possible to change your “risk” status, but you can certainly shop around for better fees.
As you begin exploring your options, be on the lookout for the following:
- Payment providers that specialize in high-risk industries because they understand the landscape and can assess each business on a case-by-case basis instead of charging expensive fees across the board.
- Providers that support ACH, e-check, digital wallet and even Bitcoin processing. Not all payment types are created equal, and you can sometimes avoid certain fees and penalties by processing non-card transactions.
- Payment processors that offer transparent pricing and well-documented risk criteria. More specifically, you want a processor that will actively work with you to keep your costs as low as possible. In addition to helping you minimize any internal risks, that provider should also be able to advise you on optional fraud prevention strategies you can implement today.
Matt Wollersheim is the vice president of sales and marketing at Performance Card Service, a company that provides a high-risk payment processing solution.