Tag Archives: high risk

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Why is a Business Considered High Risk For Merchant Services?

High risk businesses are subject to more expensive merchant service charges than others. A business will spend more to process each transaction if it is a high-risk entity. It could also be subject to increased charges. Contract terms for the business could also be restrictive. Some companies may even have some of their revenues tied up in rolling reserves. They may not get those funds in their reserves until weeks after they are paid. 

The issues that come with being a high-risk business for merchant services are significant. But what would cause a business to become high-risk in the first place?

You must be aware of these concerns that can cause a business to become risky for merchant service providers. There’s always a chance you might fall into this category.

High Risk Business For Merchant Services – Top reasons

The Industry May Be Risky

The most common reason why a business can be considered risky is because of its format. Businesses in certain fields are more likely to experience chargebacks, fraud, and other concerns.

High Risk Business - Online electronic sales

Some of the industries that are often high-risk include:

  • Adult product businesses
  • Bail bonds
  • Online electronics sales
  • Debt services
  • Timeshares
  • Telecommunications sales, including for VoIP services or calling cards
  • Travel services
  • Firearm dealers, including those who sell ammunition
  • Software downloads
  • Dating and personal sites
  • Online auctions
  • Multi-level marketing programs
  • General business opportunities; include promotions where someone could invest in a business endeavor that hasn’t gotten off the ground yet

These industries and many others have higher chargeback rates than others. Their financial stability and legality can also be in question in some cases. There’s a chance a company might shut down or become heavily regulated, causing its risk to increase.

The Products or Services Are Questionable

A business can also be a high-risk one if it sells products or services that might be of concern to some merchant service providers:

High Risk Business - selling memberships
  • A company sells expensive items. These include customized vehicle parts, high-end computing systems, and many other high-price things.
  • A business can provide memberships or other items that entail automated recurring billing processes. Billing errors often occur here, thus leading to chargebacks.
  • A business could sell items that banks might ban. These banks could prohibit the sale of certain products or services. While some banks may allow these sales, the fact that others will not do this could increase a company’s risk.
  • Some of the products a website offers can be future deliverables. These include things like event tickets, hotel or transportation reservations, and other things that will be scheduled for later. A business may issue chargebacks or returns for cases where these events are cancelled or the purchaser has buyer’s remorse and wants to walk back the transaction.

These threats are significant ones that can occur among many businesses. A business can review its operations to see what types of items or services it sells to determine its risk.

MATCH Listing

High-risk businesses will be on the MATCH list. The Merchant Alert To Control High-Risk list highlights merchants whose accounts have been terminated in the last five years. The MATCH list highlights companies that have struggled to manage their accounts and have been deemed unable to work with them as desired.

Not Enough Financial Data

A merchant service provider may list a business as high-risk if it doesn’t have enough company financials to review. A business must have enough money to support its chargeback liabilities. A company that doesn’t have enough proof to show it can handle chargebacks will be charged more.

Not Enough Financial Data

This problem is more prominent among newer businesses. But more established companies could also have the same issue. Some businesses may be willing to conceal their financial data to reduce the risk of losing funds.

Poor Credit

A business could also have a poor credit rating. The weak rating may be due to a business running up significant debts and being unable to manage its inventory. A business with a weak credit score may be high-risk due to how it might be unable to manage chargebacks and other threats. A business needs to manage its funds well, or it will be unable to get a better credit rating going forward.

Time In Business

Most business owners don’t assume that the amount of time they’ve spent in business will influence their risk. But businesses that have been around for a while won’t be as risky to merchant service providers. A long-running business will be more established and will have an idea of how it can run its operations. It will be more stable, thus reducing its general risk.

Online Operation

A business can reduce its risk for chargebacks by managing physical card transactions. But companies that don’t see the actual cards these customers use will be high-risk entities.

A business that operates online will complete CNP or card-not-present transactions. These deals allow someone to enter one’s card data online. While a website might offer a secure platform for transactions, there’s always the chance that someone might engage in card fraud. Someone who isn’t the proper customer might take the physical card and enter it into a website for a purchase. The risk of purchase fraud will increase the general risk that the business holds.

Check Your Business Status

Take a good look at your business and see how it operates and functions. Be aware of what it is doing and that you have control over how you operate things. Look at what you sell and how your finances look, especially if you’ve been around for a while. Your review can help determine if your business is a high-risk entity and if you’re going to spend more on credit card processing efforts.

But don’t think that if you’re a high-risk business operator you can’t find merchant services. You can still look for many merchant services that can support high-risk entities. But be advised that you will still pay more for the service than if you were at a lower risk than what someone is often willing to afford or support.

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7 Ways Your High-Risk Business Can Prevent Chargebacks

Your business may already be a high-risk entity because you’ve been dealing with chargebacks. Chargebacks are inconvenient for how they cause you to lose money from both lost transactions and fees imposed by your merchant service provider. 

The worst part about chargebacks is that they can occur for various reasons. It could be from fraud, a technical error, duplicate billing, or because someone did not receive a product or service as advertised. While you might want to ensure the customer is satisfied, you’ll lose money while doing so due to your chargeback.

But your high-risk business can prevent chargebacks if you use a few points for your work. Here are seven things to do to keep chargebacks from being a possible threat to your business.

  1. Let your customers know what they are buying.

Start by providing your customers with details on what they are buying from you. You will reduce your risk of chargebacks when you let people see what you’re offering for sale. You can provide full descriptions of everything you’re selling. Videos and pictures that show your items from multiple angles will also help.

You can also answer questions people have about whatever you’re selling. Answering these questions will help people feel confident in the purchases they are making while reducing your risk of chargebacks. They will also know more about these products and how they might be advantageous for their needs, making them more likely to complete these purchases.

  1. Include a sensible billing descriptor.

One reason why chargebacks occur is that people aren’t fully aware of who is on a bill. A customer may dispute a charge if that person doesn’t recognize the billing party.

You can reduce this threat by producing a more accurate billing descriptor. The descriptor can include things like your company name and a phone number where people can contact you if they have issues. People can communicate directly with you if they have any problems with their orders.

  1. Prepare a sensible return policy.

You must have a suitable refund and return policy to prevent chargebacks. You can post details on your return policy on your website, at your register, or anywhere else you do business. The customer can review the timeframe for making a return, any fees associated with the return, and possible exclusions to the policy. The customer will contact you instead of the credit card company if that person knows you can handle the return and refund process. The direct effort prevents a chargeback, plus it improves your standing with the customer. The client will feel confident in doing business with you.

The return policy should still be reasonable and easy to handle. The policy should be something you can fulfill without risking possible losses.

  1. Provide details on your shipping efforts.

One problem with today’s online shopping world is that people expect to get their purchases delivered to them right away. Your business could be subject to chargebacks if your customers are unhappy with the shipping process. They might figure their orders won’t reach their destinations, resulting in chargebacks.

List whatever shipping policies you have on your website to let customers know what they can expect when buying something from you. Let the customers see how long it will take to ship something and if expedited options are available at extra cost.

Be realistic when telling people how long it will take for them to receive their orders. Don’t get anyone’s hopes up by promising you can get their orders ready in less time than most others.

  1. Offer the best possible customer service.

Your customer service efforts are critical to preventing chargebacks. Customers will feel confident in doing business with you when they notice you’re listening to their every need. They will contact you first instead of the credit card company if you pay attention to their needs and respond to whatever they require for work.

Always respond to customer calls and requests as they arrive. Be ready to answer questions and respond to whatever requests someone might hold. You can support a customer’s needs if you look at how well you’re answering one’s questions and facilitating the unique demands that person may hold.

  1. Review your fraud protection tools.

Every business can use fraud protection tools to keep them safe. You can use a firewall that blocks suspicious IPs. You can also use identity verification systems and protocols to reduce fraud risk. A security system can also include filters that identify potentially risky transactions based on value, frequency, location, and other factors.

Your merchant service provider can help you with various fraud protection tools that can protect your business and prevent chargebacks. Look at what your provider offers and see how you can use these systems. Don’t assume your provider will cover everything, as you might need to add outside materials of your own to help you prevent fraud from being a concern with your business.

  1. Look at your prior chargebacks to see what caused them.

The last way to prevent chargebacks is to look back at some of the chargebacks you’ve dealt with in the past. A high-risk business will likely have plenty of prior chargebacks to review. But there might be a trend surrounding all these chargebacks.

You might notice trends like chargebacks coming from purchases of certain values or specific locations. Some chargebacks may also come from terminals or shopping carts not meeting PCI standards.

Look at what you’ve been doing when seeing how you’re getting chargebacks. You can figure out how to fix things the right way when you look at what is open.

All seven of these solutions are worth reviewing when you’re aiming to prevent chargebacks. But make sure when using these points that you know where you’re going with your work. Your plan for stopping chargebacks will help you build your reputation, but you will require a thorough approach that entails supporting your customers and providing enough info to keep people comfortable with your work.