Those in the eCommerce industry will find themselves in search of a high-risk merchant account at some point. To better understand these accounts and why they are necessary, take a closer look at the industry and what qualifies as high-risk.
Overview of eCommerce
eCommerce has been experiencing incredible growth. In 2018, consumers spent $517.36 billion in online sales with merchants in the United States. This is an increase of 15% compared to the previous year.
Unfortunately for eCommerce businesses, companies in this industry tend to be considered high-risk, and so they require high-risk payment processing. That labeling means that instead of being able to open a merchant account with any payment processor, they must find a high-risk merchant account provider.
Why eCommerce Businesses are Labeled as High-Risk
There are a few key factors behind the designation of eCommerce businesses as high-risk merchant accounts. The biggest factor is that there is a great deal of uncertainty in regards to whether the business will be a success or failure. As of a few years ago, some experts estimated that the failure rate for eCommerce was as high as 97 percent (although some placed it closer to 80 percent).
With such a high chance of failure for eCommerce businesses, it makes sense that payment processors would be cautious. By requiring a high-risk merchant account, payment processors can mitigate the risk of working with these companies.
Merchant services providers will often classify eCommerce businesses as high-risk due to the frequently volatile nature of their assets. In many cases, a startup eCommerce business will not have much capital, which reduces their ability to deal with issues and increases the risk for payment processors.
Another contributing factor in merchant service providers characterizing eCommerce businesses as high-risk is the fact that such businesses are often brand new. As such, they likely have very minimal or no payment processing history at all. As with having an unestablished credit history, having a limited payment processing history is a potential red flag that a customer may present a higher-than-average level of risk for the payment processor.
The specifics of having a high-risk merchant account will vary between payment processing providers, but the commonality is that there will be additional requirements and likely some limits.
It is common to require additional steps in the application process to open a high-risk merchant account, so eCommerce businesses will usually have to deal with additional scrutiny before receiving their services.
Depending on the high-risk merchant account provider, there may also be additional requirements, such as a monthly transaction limit or a cash-on-hand requirement. The specifics of these and other additional restrictions will vary by provider and situation.
It is also very likely that those in search of high-risk payment processing will find themselves dealing with higher processing rates and fees. Since some providers may completely refuse to work with high-risk merchants like eCommerce companies, other payment processors get away with charging exorbitant fees to their clients who feel like there aren’t any other options out there.
How to Obtain a High-Risk Merchant Account
With some basic knowledge, you should be able to get a high-risk merchant account from a payment processor. Always be up front and honest with the merchant services provider. Let them know that you have an eCommerce business and what you sell—and be honest if they ask further questions.
During the account application process, you should expect to provide your business or personal bank statements. You will also need to supply your credit score and outline your business plan. Presenting all of this information openly will demonstrate to the payment processor that your company is reliable and responsible, which may help alleviate some of their hesitations in working with a high-risk customer.
High-Risk Merchant Accounts with Zenti
Instead of getting frustrated trying to avoid the high-risk label or searching for high-risk merchant account services, contact Zenti. We specialize in high-risk merchant accounts, so we won’t turn you away just because of the nature of your business.
BankCard also offers tools for management and chargeback protection. Our services not only provide payment processing but can also protect against fraud and minimize chargebacks. Zenti has the highest approval rating in the industry, so you’re likely to be approved. We also have a faster turnaround and better rates than other payment processors.