Authorize.net + High-Risk = ?

In the vast world of e-commerce, where credit cards have taken the place of cash, payment gateways such as Authorize.net provide convenient credit card processing and automated payment solutions for merchants and their customers. 

But while Authorize.net has a stellar reputation as one of the nation’s primary processors, you might be surprised to know that several industries still have difficulty getting approved for basic credit card processing. And even more surprisingly, this list includes many key industries that significantly impact the nation’s economy.

Why are these industries discouraged from credit card usage? And is there a way to make credit card processing possible for these businesses? The good news is, yes, there are several viable workarounds for these companies. But before discussing these, it might help to understand how Authorize.net and other payment processing companies work with merchant accounts.

What is Authorize.net, and how does it work? 

If you own or manage a business, you’ve probably heard about Authorize.net. If you haven’t, you might be wondering how it fits into this picture and whether it offers many solutions for high-risk merchants. 

Authorize.net is a payment gateway company that provides payment processing options for businesses, especially small and independently-owned businesses. A subsidiary of Visa, Authorize.net offers credit card payment services for more than 430,000 merchants, including merchants that could be categorized as high-risk.  

Although it’s one of the leading payment gateway companies in the US, Authorize.net may still decline to work with a high-risk merchant or industry. While acceptance is usually pretty straightforward for low-risk merchants, it’s also true that some of the payment gateways used by Authorize.net aren’t capable of taking on high-risk credit card transactions or high-risk merchants and industries.

If Authorize.net takes your account, it can freeze or drop it if there’s even a hint of a higher-than-average chargeback rate or an unusual increase in credit card declines. This can leave merchants feeling as if they have little or no control over the financial future of their businesses. 

The good news for high-risk industry merchants is that with expert guidance, you can get the payment processing approval your company needs to succeed. But first, it’s time to talk about why some businesses are considered “high-risk” for payment processors.

Why certain industries are designated “high-risk.”

No matter how successful they are, in banking and credit card processing, certain industries are designated as “high-risk.” Because of this, they’re usually turned away by merchant processing companies and gateway processors such as Authorize.net. As a result, companies within these industries typically cannot offer credit card and electronic payment options for their customers.  

What causes an industry to be designated as high-risk? First, gateway payment companies like Authorize.net look at credit worth. However, this is measured differently for businesses than for individual consumers. Second, merchant processors look at the rate of chargebacks or credit card returns. Some industries have higher than average chargebacks, putting them in a high-risk category. 

Why are high chargeback rates a risk?

A chargeback occurs when customers decide to return a product or cancel a service. Most of these are legitimate. However, a high rate of chargebacks can indicate fraudulent activity, which is a red flag for merchant service providers. Even when chargebacks are legitimate, an excessive number can wreak havoc for a merchant processor, negatively impacting profits.  

Certain industries are especially prone to high rates of chargebacks. For example, property management companies often deal with high chargeback rates due to tenants refusing to pay because of dissatisfaction or disputes with their landlords.

Likewise, property managers of vacation homes often have to deal with chargebacks because they’re usually obligated to return rental deposits or even full rental charges when vacations are canceled. During the COVID-19 pandemic, the vacation rental industry and the entire travel and tourism industry were hit especially hard. Chargebacks became a major headache for all businesses involved in travel-related services.

According to industry statistics, in 2019, one out of eight chargebacks was issued within the tourism/travel industry, and the pandemic made these numbers substantially higher. In addition, industry data shows that the travel sector is currently seeing a significantly higher rate of fraudulent chargebacks, making them even riskier for merchant processing companies. 

Other factors affect industry credit risk as well. For example, cannabis companies typically can’t get approved for a merchant payment processing account because of legal considerations. Specifically, the fact that cannabis has not yet been legalized on a federal level.

Likewise, companies that offer monthly subscription packages, such as food or beauty products, experience a high rate of cancellations each month. This puts them in the high-risk category.

Another red flag for Authorize.net and similar processing companies is high decline rates. These happen when more than an average number of customers aren’t approved when they submit credit card payments. This is prevalent in industries like online gambling and gaming. Since these behaviors are difficult to monitor, many merchant processing companies refuse to deal with online gaming and gambling companies. 

Get approved for a high risk merchant account fast!

Which industries are considered high-risk? 

Surprisingly, many companies don’t realize that they are classified in a high-risk category until they discover that their payment processing account has been suspended due to a lack of funds. Once this happens, they’re just a step away from having their payment processing account canceled with little or no notice.

Here are just a few of the industries that credit card processors consider to be high-risk

Some businesses are designated as high-risk though they are not in these industries because they’re independently or privately owned. For example, all major airline and travel companies take credit cards, but small, family-owned travel businesses might not be approved for an account with a payment processing company. This is because the risk of vacation cancellations, chargebacks, and other financial losses can be better absorbed by a major corporation than by a small, independently run business.

Payment processors and high-risk accounts  

Ultimately, merchant processing companies like Authorize.net aren’t enthusiastic about working with high-risk accounts because they risk losing money. However, it’s worth taking a moment to delve deeper into why there’s a financial risk, to begin with. 

Merchant processing companies accept merchants as clients in the same way a bank agrees to a loan. Banks agree to lend because clients are at low risk of default. Payment processing companies work on the assumption that a merchant client will be low-risk and generate profits. Just as banks investigate customers before agreeing to a loan, merchant processing companies look into the merchant’s industry to assess risk.

In the end, the decision can come down to underwriting. To take on merchant accounts, payment processing companies must have underwriting from various financial institutions, so any unexpected losses are covered. Banks, credit card companies, and other financial entities partner with these payment processing companies. After all, they stand to profit, too. But they don’t like to take risks, and in many cases, they simply won’t provide the necessary underwriting for high-risk industries. 

Now that you’ve seen why you might be declined by Authorize.net or a similar merchant processing company, it’s time to look at how you can get accepted. That’s important because your business will benefit from the ability to streamline your customer payments with credit cards and online payments. 

Why do you need payment processing for your business? 

Whether you’re a property manager, an e-commerce vendor, or a service provider, your business will benefit if you can offer your customers the convenience of credit cards, e-checks, and online payments. Here’s a look at the advantages of using a payment processing company. 

Easy, convenient credit card payments. 

You’ll increase sales and customer satisfaction by offering your customers the convenience of credit cards, e-check, and other automated payment options. 

Payments via mobile apps 

With a payment processing company, your customers will be able to pay online and through mobile devices. 

Real-time payment tracking 

You’ll be able to access up-to-date payment tracking from when payments are received.  

Expert management tools 

A payment processing account will provide you with the management tools you need to eliminate unnecessary bookkeeping and paperwork. 

Applying for a high-risk merchant account 

Even if you’re in a high-risk industry, you can still control some factors when getting approval from Authorize.net or another payment processing company. These tips can help you get started: • Start saving documents now. Payment processing companies may ask for as many as six months’ worth of bank statements and several years’ worth of tax returns. They’ll want to see how successful your business is and make a note of your sales and the rate of customer returns. • Mitigate chargebacks. If possible, use sales strategies to reduce your return rates, especially if they’re high. Find out the source of these returns. For example, are customers dissatisfied with the product, or did they feel it wasn’t described accurately? With better customer communication, you can reduce customer returns, which is critical for approving a merchant account. • Stash your cash in the bank. Merchant processing companies like to see a healthy bank account with good cash backing, especially if you’ve been running your business on a cash basis.  

Choosing a high-risk merchant processor company 

There are several high-risk merchant processing companies on the market now, but as with any business, each operates differently, with varying regulations, limitations, and benefits. Here’s what you should look for: 

Does the merchant processor work with your industry? 

This may not be the case, so finding this out from the get-go is important. Some payment processing companies, for example, are still reluctant to take on cannabis or property management companies. Likewise, some merchant processing companies specialize in serving these specific industries and may be able to offer valuable services that you’ll need. 

Fair pricing policies 

There’s no way to avoid it. As a merchant in a high-risk industry, you’ll likely have to pay increased fees, which help toward covering the risks involved with accounts in your industry. However, some payment processors take advantage of this by charging higher than normal fees and adding extra fees for processing, early termination, or chargebacks. A reputable company will keep these fees within industry standards and provide you with full disclosure, so you’ll know exactly what you’ll be paying. 

Consistent fees for all credit cards 

A reputable merchant processing company should charge the same fees across the board for Visa, MasterCard, Discover, and American Express.   

Multiple payment options 

A good merchant processing company will enable you to offer a variety of payment methods for your customers. In addition to credit cards, you’ll be able to provide options for e-check payments and payments through mobile apps. 

If you’d like to enjoy all the benefits of providing easy, streamlined credit card payments for your customers, Bankcard can help. Bankcard specializes in helping high-risk merchant accounts get the payment processing services they need, so they can offer convenient payment platforms and invoicing services for their customers.

In addition, Bankcard can help your company boost sales, reduce chargebacks, and eliminate tedious bookkeeping every month. To find out what we can do for your business, contact us for a free consultation. We’ll show you how our experts can help your business get the payment processing services it needs and deserves.