Startup High Risk Merchant Accounts | Let's chat

There are few things more critical to a business — or more fundamental — than having access to essential financial services. These services include things that many merchants often take for granted, such as credit card processing and eCommerce gateway, equipment for a payment processor, and various other tools. However, for many businesses, this is not a challenge: They are usually able to find services that are affordable and thus implementable within their business.

Unfortunately, for other businesses, this can be more challenging. For example, some companies will need a high-risk merchant account, explicitly meant for certain types of businesses that are riskier than others. In this case, accessing banking services can be a challenge. Thankfully, if you find exemplary service - such as Zenti - you can gain access to these services in a way that is affordable for you and fills your business needs.

What is a high-risk business?

High-risk businesses are referred to as high-risk because of the specific risk to a payment processor. Financial institutions may be less willing to do business with a high-risk business or a startup, as doing so can get very expensive, very quickly. Remember, risk-risk companies will cost a merchant service provider money by making them pay higher fees and do more work. These expenses come with a higher amount of chargebacks or fraud.

In this instance, the phrase “high-risk” refers to the risk undertaken by the merchant account provider. One of the chief reasons for those risks is chargebacks and chargeback fees. Chargebacks happen when a credit card processor charges a card but then has to refund that charge. The chargeback can happen for many reasons, including suspected fraud, dissatisfaction with a product, or a customer feeling as if they are not getting their money’s worth out of a purchase.

As a business, your goal will be to keep your chargeback ratio to the lowest number possible. Each vendor has different requirements, but all companies require you to keep the chargeback ratio as low as possible. You will also want to work with your provider to determine an appropriate chargeback ratio for your business. Thankfully, Zenti can help any company lower its chargeback ratio and save as much money as possible.

Why is my Business Considered High-Risk?

There are many reasons that your business may be considered high-risk. Many of these risks are related explicitly to chargebacks. If you have more chargebacks or work in an industry with a high level of chargebacks or fraud, your business is more likely to get tagged as “high-risk.” If this happens, you will need high-risk services.

Keep in mind that there is no legal definition of what business is high-risk and what isn’t. As such, there are more factors than chargebacks that determine if a business is considered high risk. The category of business also makes a significant impact on risk determination. This happens because some businesses work in industries that are less than reputable. These businesses are more likely to engage in transactions that are less than legal, and this can have a significant negative impact on payment processors. Remember, if your business gets into trouble, your payment processor will have to do the necessary work to retrieve any financial information requested by the government. This may have a reputational impact on the vendor. It may also impact their insurance rates.

So, what types of businesses are more likely to be tagged as high-risk? Businesses in the following industries, among others:

• Businesses are involved in selling certain substances, like drugs, alcohol, drug paraphernalia, e-cigarettes, or vape products.

• Businesses that sell products that may be found to be “morally questionable” by some, like adult services or pornography. Pawn shops also fall into this category.

• Subscription-based services, as these services often have high levels of chargebacks.

• Multilevel Marketing (MLM) businesses.

• Certain financial services or entertainment businesses, like credit repair services or fantasy sports.

Any business with a higher risk of fraud is likelier to earn a high-risk categorization. For example, if you do extensive business in foreign currencies, you can likely expect to be tagged as high-risk, as it is easier to have some fraud in these instances.

Businesses may also be at high risk if they occupy a legally questionable space. For example, CBD and Nutraceuticals may be legal, but various questions about their effectiveness and regulations surrounding the compound remain. As such, selling CBD is likely to get a high-risk tag.

High-volume businesses — meaning businesses with higher-than-average transactions — are also more likely to be high-risk businesses. These businesses are more likely to have chargebacks than a low-risk merchant account that doesn’t process an extensive amount of credit cards. Of course, limiting your sales volume isn’t a good business practice, but you should know that businesses with high sales volume levels are more likely to be categorized as high risk.

Finally, a lack of business history may also result in a high-risk categorization. In an instance like this, you can expect a phone call from your merchant account provider, as they will seek to verify financial information. You may have to submit various financial documents, bank statements, and a credit score. If these documents are not satisfactory, or if you have poor credit, you may not be able to get services from payment providers.

As a business owner, you must be aware of these challenges and plan accordingly. Your budget should reflect the likelihood of being considered high-risk and paying more in expenses. Furthermore, you will need to develop contingency plans to protect your business if a merchant, such as Paypal, follows through with the terms of their user agreement and drops your high-risk account. Working with a high-risk merchant account provider — like Zenti — can help you find great ways to reduce your risk and save money.

How does this impact my startup?

No question that falling into the high-risk category may impact your startup in a very significant way. The following is a summary of some of what a high-risk business categorization can do to you:

• Higher fees: If you need high-risk credit card processing, you are likely to pay more in fees on every credit card or transaction that you process. These fees come from two sources: The flat fee per card transaction and the percentage charge from the vendor. As you can imagine, this higher pricing can eat away a healthy amount of your profit. Additionally, you have to pay chargeback fees, which will certainly be higher.

• Higher reserve: High-risk payment processors require you to have a certain cash reserve on hand. This cash reserve ensures you can pay any bad debt out of the reserve. This is more likely with a startup that may not have an established history of being able to pay for their merchant services.

• More requirements: You will likely have to provide an array of history to any merchant account provider if you are at high risk. This will be necessary to prove your ability to make payments. You will need to provide an extensive processing history, proof of financial underwriting, credit history, personal credit, bank statements, an upfront fee, and more. It is also very likely that the application process will be much longer.

What can I do to reduce chargebacks and protect merchant services for my startup?

Reducing chargebacks as a startup can be a very daunting task. After all, your business is just getting started. In addition, you almost certainly do not have an extended payment history to draw upon, nor do you have a long record of transactions that can reduce your chargebacks.

• Secure your website: Make sure that you are using the latest security and encryption when someone is making a purchase, and make sure that you are taking advantage of any necessary tools to verify that the owner of the credit card is the same person making a payment, regardless of if the price is being made on the internet or in person. This can save you from a fraudulent chargeback.

• Be clear and transparent with policies: You should ensure that your customers understand what they are getting, what they aren’t getting, and what your refund policies are when they make a purchase. This information should be listed on your website or your receipt.

• Consider alternative arrangements: Many businesses will provide their customers with alternatives to refunds on a credit card, like a gift card. Doing so can not only help to get the customer back in the door, but it can save you a chargeback.

• Provide excellent customer service: Remember, a customer is much less likely to seek a refund — thus resulting in a chargeback — if they left your store or website smiling, happy, and satisfied with their purchase. Going that extra mile can help ensure your customer won’t seek a chargeback.

• Provide clear descriptions and give your contact information on receipts: This helps to ensure that customers know what they purchased and how to get in touch with you if there is a problem. This ensures they don’t erroneously claim fraud, resulting in a chargeback.

Above all else, make sure you find a merchant who will work with you to help you identify business-specific ways that you can utilize to reduce your chargebacks. You need to find a payment processor who understands your needs and has a track record of working with high-risk businesses and looking to reduce their fees. You will also need to find a payment processor who can help you identify services that will be useful to you, not just benefits for which they can charge you. At Zenti, we have a long history of working with various merchant account processors that are well-equipped to handle your business needs, even if you are just a startup.

Are there specific payment processors that work for high-risk industries?

Absolutely. Fortunately, vendors can provide you with specific access to merchant services in high-risk industries. Your needs will vary depending on the specific line of work. However, you will certainly need at least a few of the following services:

• High-risk e-commerce payments will ensure you can process credit card payments over the internet.

• Retail payments will allow you to take payments in a brick-and-mortar store. Depending on your specific service, you’ll be able to process credit cards in person or via a card-not-present transaction.

• Zero-cost payment gateway, which is a free credit card processing method of payment. Using this service shifts the nature of the fees you pay towards a model that will enable you to reap more cost savings.

• Cryptocurrency payment collections. This is a relatively complicated and new method of accepting payments, but one that more and more companies are starting to use. Traditional merchants and merchant processing accounts may not have this feature, so you must check and see what is available.

• High-risk ACH payment processing allows you to collect payment directly from a customer’s bank account.

• Integration with your already existing website. This enables you to ensure that your payment processor is integrated with your existing POS, inventory management, and accounting system. This often means that you need specific programming assistance.

This is just a snapshot of the services that vendors should offer, and you may need more. Any robust merchant services provider should be able to provide you with these merchant processing services and more. Thankfully, Zenti is here to help your business thrive. At Zenti, we have all of the above services and much more. You can use us to get your startup off the ground, even if you are a high-risk business. Want more information? Contact Zenti today, and learn how we can help your business thrive.