When trying to get approval from banks, some merchants fall into what is called the ‘high risk funding’ category. This can be frustrating for people operating in certain fields, as they are legitimate businesses who may not feel that their line of work inherently puts the bank funding them at any financial risk. Professionals that may feel the crunch when it comes to finding business funding include those in the legal profession, restaurant owners, merchants using ecommerce processing, and those operating convenience stores.
Characteristics of a High Risk Merchant
Merchants who seek high risk funding will often face another hurdle when it comes to getting a company to handle their credit card processing. Sometimes high risk merchants will face denial, or they will be asked to pay higher than usual processing fees. There are certain characteristics that will lead a credit card processing company to label a merchant as high risk. One of these includes having a higher chargeback rate than usual. A chargeback is when a credit card’s issuing bank disputes a charge as fraudulent or as not valid because the goods and services were not received or because they were not up to par. It involves the reversal of funds that were already approved, and it can create a lot of paperwork.
Another common cause for a merchant to be considered high risk is because they are new and have relatively little history accepting payments. This is one of the few cases where they can hopefully develop a good reputation and be considered low risk at a later date. Another reason businesses may be considered high risk is because they accept recurring payments, and this one will be hard to avoid if your business offers a subscription service. Other factors are whether you offer products and services in areas that are prone to high rates of fraud. Prevalence of fraud tends to be higher in the regions outside of Europe, Japan, Australia, Western and Northern Europe, the U.S., and Canada, and this tends to go hand in hand with a higher occurrence of problems when accepting currencies from a variety of countries.
It is vital to understand how to prevent chargebacks, since this can cause a low risk merchant to be labeled high risk and to experience the consequences that go along with that. Some ways to protect a business against excessive chargebacks are to make sure that your merchant name shows up on your customers’ statements as something they will recognize. Too often, customers will make a purchase with a company only to dispute the charge later, because it does not look familiar to them. Another thing merchants can do is to invest in some good customer service resources that can answer client questions when they call so that a questioned charge does not become a disputed charge.