Business owners that are starting out might not know what high-risk credit card processing is or whether it applies to their business.
High-Risk Processing Explained
After a credit card transaction takes place and payment has been received by the business, it is still possible for the cardholder to dispute the payment. This is called a “chargeback.” This could be because of credit card fraud, because the business did not deliver what they promised, or because the cardholder erroneously failed to recognize a legitimate charge.
Chargebacks are relatively rare, but they can happen even when a business does everything right. Chargebacks occur in every possible industry, but, statistically speaking, they are far more common in some kinds of businesses than others. These can include (but are not limited to) subscription based services, travel services, dating websites, pharmaceuticals, and many other online businesses.
Since the business will typically have already received the money from the transaction by the time a successful chargeback occurs, this means that the processor must use its own money to refund the cardholder, and then try to get that money back from the business. The business may not have the ability to pay this money back, or it may even have ceased to exist at this point. If the processor cannot recover the cash from the business, then the processor is simply out that money.
Given how many merchants a processor may service, this is a major risk for the processor that the processor must try to manage through the underwriting process. This is why a business that is designated as “high-risk” may have a more difficult time finding a processor that will work with them, and may have to pay higher rates if they are able to obtain a credit card merchant account.
Whic Business Owners Need A High-Risk Processor?
Whether a business owner must use a high-risk processor in order to accept credit cards depends on a number of factors. In addition to the type of business they conduct, other factors may include the country in which the business is located, the amount of time the business has been operating, any prior credit card processing history the business can point to, and the creditworthiness of the business and its principals.
Whether a business is classified as “high-risk” may vary, depending upon which processor is underwriting the account. contacting a merchant account provider that can work with high-risk merchants can drastically increase the chances of being approved to accept credit cards, and can result in significantly lower costs for the business.