In the credit card processing industry, some business types are considered high-risk. High-risk businesses are often turned down for standard merchant accounts. It’s important for business owners to understand if they are in a high-risk industry, as a specialized type of merchant account is often necessary.
What Are High Risk Businesses?
Certain industries are considered high-risk. Businesses in this category typically have very high discount rates and large security reserves. A merchant is usually classified as high-risk if the industry has a higher risk of fraud and chargebacks. The two highest-risk accounts are adult material or pornography and online gambling. Both industries require specialized merchant accounts.
There are many other businesses that are considered moderate risk. While traditionally viewed as high risk, these businesses can get approved for a regular account, although credit card processing fees will still be higher.
The most common high-risk merchants include:
-Phone services, particularly prepaid phone cards
-Multi-level marketing and direct sales
-Travel accommodations, airfare, or packages
-Discount memberships or gym memberships
-Software downloads
-Health and wellness products
-Electronic cigarettes
-Credit repair services
High-Risk Merchant Accounts
It’s important to understand that what one credit card processing provider considers high-risk, another may view as acceptable. This is based on each company’s underwriting guidelines. Merchants who offer high-risk services or products should consider a provider that specializes in high-risk industries.
Getting Approved
High-risk merchants can improve their chances of getting approved by highlighting the best features of the business. A cover letter should include relevant information, such as the industry insight of people involved in the project. Merchants should also discuss anything that makes the business stand out, such as proactive fraud monitoring.
Address high trading volumes in a cover letter. Trading volumes impact the risk to the processing company. Showing a strong processing history with a great deal of money moving through the business can increase the chance of approval.
Finally, high-risk merchants should have a plan to address long fulfillment duration. Fulfillment duration refers to the amount of time it takes between when payment is collected and when the service or product is delivered. The longer the fulfillment duration, the higher the risk of chargebacks, and thus the riskier the business. Reducing the fulfillment duration or showing strong reserves makes the merchant a lower risk.