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I have worked with several established e-commerce companies and startups in the years before, during and after the pandemic. When it comes to credit card processing, I can say that the experience has been interesting and at times intimidating. You would think that by now credit card processing would be easy. This, however, is not the case.
Since the turn of the millennium, e-commerce has been growing at an astonishing rate, averaging a healthy 17% growth between the years 2003 and 2016. A few years later, the pandemic pushed it into a trajectory fueled by afterburner, and the rest, as they say, is (recent) history.
To be clear, the technology that enables digital payments is what makes it possible for businesses to transact online, and that’s not going to change anytime soon. It is fair to say that the adoption of digital payment methods has increased both efficiency and accessibility along the value chain.
Related: The ins and outs of modern payment processing
Just consider the meteoric rise of online retailing, which now allows consumers in the world’s most underdeveloped economies to shop from the comfort of their own homes. To conduct business in-store or online through B2B and B2C platforms, today’s businesses of all sizes have quickly adapted to the changing landscape by accepting e-wallets, credit and debit cards, and other forms of electronic payment.
As much as digital and mobile wallets have taken the world by storm, their use is more prevalent in some areas than others. A survey conducted by statista.com showed that credit cards remain the preferred form of e-commerce payment in many regions, including the United States, accounting for 23% of all global e-commerce transactions in 2020. Van represent 60% of transactions in Asia and only 20. % in Latin America. It will be a while before credit cards become obsolete; in fact, card transactions increased in 2019 (a 42% increase over 2015).
But as with all things financial, prudence always dictates, and what hasn’t changed since time immemorial is “risk!” This is amplified when it comes to credit card processing. Therefore, financial institutions (FIs) have an additional responsibility to mitigate these risks and do so by strictly adhering to KYC/AML and PCI DSS compliance regulations. As such, it is not surprising that FIs involved in card processing (ie, acquiring and issuing banks, payment aggregators and other third-party processors) prefer low-risk merchants. So, if you’ve made repeated attempts to open a merchant account and been rejected, or god forbid, your merchant account gets suspended, you most likely fall into this other category: a high-level merchant risk
Related: 5 Things to Know When Choosing a Merchant Processing Company
What makes you a high risk trader?
So what exactly makes a business high risk? Typically, it’s the nature of your product, the industry you’re in, your credit rating and operational efficiency. It’s no wonder that payment processors panic when they see high occurrences of chargebacks, chargebacks, chargebacks, and high average transaction values. Excessive surcharges above 0.9% of your transactions automatically put you in the high risk category. These refunds could stem from late deliveries or quality issues, although the causes are external in many cases. To avoid falling into this category, merchants can proactively take appropriate preventive or corrective measures.
It’s hard enough to run a business without having to worry about payment processing; having your merchant account suspended or closed is the last thing you need. To add to your woes, getting another account approved is a daunting and daunting task. To put things into perspective, it helps to know how payment processors evaluate potential merchants.
When it comes to specific industries, such as online gambling, dating sites, or adult entertainment, it’s not uncommon for these companies to be flagged as high risk. Processors are reluctant to jeopardize their relationships with FIs and generally prune their merchant lists with this in mind.
High risk trading accounts
Credit card processing involves much more than simply transferring funds. Customer payments are held in your merchant account in advance, even before the goods and services are delivered and without knowing whether the product meets the customer’s satisfaction. As with any line of credit, if you, as the business owner, cannot provide the money for the chargeback, then it will fall to the account provider.
There is a risk associated with the merchant, who will incur a chargeback fee. If you are a small business, you may be charged a different rate along with an ongoing booking. Therefore, the merchant account provider is taking a risk.
Related: Why Payment Processors Are Suspending Their Legitimate But High-Risk Merchants
Why it makes sense to consider a high-risk credit card processor
Some industries simply carry inherent risks, but in many cases, the potential revenue upside from credit card purchases makes the additional cost of using high-risk processing worth it.
Relationships are important to high risk processors and you can get a quote within 24 hours. But there is a category of payment processors that specialize in providing services to merchants, known as high-risk credit processors. A random search for names like Shark Processing, PaymentCloud or SecurionPay will result in a quote within 24 hours.
The level of risk taken by this group of processors can vary, and some even find a niche in very high-risk traders. Shark Processing, for example, has an interesting take on the subject and believes that there is no single framework applied to the industry. However, the common factors encapsulated in the bank’s risk assessment criteria mean that some factors affecting a particular industry may increase the risk profile of a trader in a completely different industry. In this regard, the company helps high-risk merchants by leveraging its network of acquiring banks.
Many high-risk processor ratings and reviews by third-party reviewers are reputable and well-researched. However, they often seem to make recommendations that contradict each other. Therefore, traders benefit more when they analyze these reviews collectively with a clear objective. More specifically, they could explore credit card processors that focus and specialize in high-risk factors that directly affect your business, for example, high-risk industries.
The bottom line is that companies should do their due diligence and consider the cost implications when selecting their processing partner.