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I have worked with several established ecommerce companies and startups in the years leading up to, during and after the pandemic. When it comes to credit card processing, I can say that the experience was interesting and at times intimidating. You would think credit card processing would be a breeze by now. However, that is not the case.
Since the turn of the millennium, e-commerce has grown at an astonishing pace, growing at an average rate of 17% between 2003 and 2016. Several years later, the pandemic pushed it on an afterburner-driven trajectory, and the calm, as they say, is ( recent) history.
To clarify, the technology that enables digital payments makes it possible for businesses to transact online, and this isn’t going to change anytime soon. It is fair to say that the adoption of digital payment methods has increased both efficiency and accessibility in the value chain.
Related: The Ins and Outs of Modern Payment Processing
All you need to consider is the meteoric rise of online retail, enabling consumers from the world’s most underdeveloped economies to shop from the comfort of their own homes. To conduct their business in-store or online through B2B and B2C platforms, today’s businesses of all sizes have quickly adapted to the changing landscape by accepting eWallets, credit and debit cards, and other forms of electronic payment.
While digital and mobile wallets have taken the world by storm, their use is more common in some areas than others. An investigation by statista.com showed that in many regions, such as the US, credit cards are still the preferred method of e-commerce payments, accounting for 23% of all global e-commerce transactions in 2020. They accounted for 60% of transactions in Asia and only 20% in Latin America. It will be some time before credit cards become obsolete – in fact, card transactions peaked in 2019 (up 42% from 2015).
But as with all financial matters, caution always dictates – and what hasn’t changed since time immemorial is ‘risk’! This is reinforced when it comes to credit card processing. Therefore, financial institutions (FIs) have an additional responsibility to mitigate such risks and do so by strictly adhering to the KYC/AML and PCI DSS compliance regulations. As such, it comes as no surprise that FIs involved in card processing (namely acquiring and issuing banks, payment aggregators and other third-party processors) prefer low-risk merchants. So if you’ve made repeated attempts to open a merchant account and have been rejected, or God forbid, your merchant account gets suspended, then you most likely fall into that other category: a high-risk merchant.
Related: 5 Things to Know When Choosing a Trade Processing Company
What makes you a high-risk trader?
So, what exactly makes a business risky? Usually it is the nature of your product, the industry you are in, your creditworthiness and operational efficiency. Unsurprisingly, payment processors flinch when they detect a lot of chargebacks, returns, refunds, and high average transaction values. Excessive chargebacks of more than 0.9% of your trades automatically place you in the high-risk category. These chargebacks can be the result of late deliveries or quality issues, although in many cases the causes are external. To avoid falling into this category, salespeople can take appropriate preventive or corrective measures as a precaution.
It’s challenging enough to run a business without worrying about payment processing; The last thing you need is having your merchant account suspended or closed. To add to your misery, getting another account approved is a daunting and arduous task. To put things in a better perspective, it helps to know how payment processors evaluate potential merchants.
When it comes to specific industries, such as online gambling, dating sites or adult entertainment, it is not uncommon for these ventures to be red flagged as high-risk. Processors are reluctant to compromise their relationships with FIs and generally prune their trading lists with this in mind.
High Risk Trader Accounts
Credit card processing involves much more than a simple transfer of money. Customer payments are held in your trading account in advance even before goods and services are delivered and without knowing whether the product meets customer satisfaction. As with any line of credit, if you, as a business owner, cannot provide the money for the chargeback, it falls to the account provider.
There is a risk associated with the merchant, who charges a chargeback. If you are a small business, you may be charged a different rate along with a rolling reserve. Therefore, the seller account provider takes a risk.
Related: Why Payment Processors Suspend Their Legitimate But Risky Merchants
Why It Makes Sense to Consider a High-Risk Credit Card Processor
Certain industries simply carry inherent risks, but in many cases, the potential benefit of credit card purchase income makes it worth the added expense of using risky processing.
Relationships are important to high-risk processors, and you can get a quote within 24 hours. But there is a category of payment processors that specialize in providing services to merchants, known as high-risk credit processors. A random search for names such as Shark Processing, PaymentCloud or SecurionPay will yield a quote within 24 hours.
The level of risk this group of processors takes can vary, with some even finding a niche in very high-risk merchants. shark processing, for example, has an interesting take on the subject and believes that there is no single framework that is applied across the industry. However, common factors encapsulated in the bank’s risk assessment criteria mean that some factors affecting one industry can raise the risk profile of a trader in an entirely different industry. In this regard, the company helps high-risk traders by leveraging its network of acquiring banks.
Many high-risk processor ratings and reviews by third-party reviewers are reputable and well-researched. However, they often seem to make contradictory recommendations. That’s why sellers benefit most when they analyze these reviews together with a clear purpose. With greater clarity, they could then investigate credit card processors that: focus and specialize on risk factors that directly affect your business, e.g. high-risk sectors.
The final conclusion is that companies should do their due diligence and consider the cost implications when selecting their processing partner.