Many people are comfortable paying for goods and services using their debit or credit cards. As an entrepreneur, it’s best that you allow customers to use the payment methods that are convenient to them. To get the most out of these favored payment methods in your business, you need to help of a payment processing service.
The cost you will incur when using such a service depends on whether your company is classified as high or low risk. Naturally, high-risk credit card processing carries a higher than average fees and strict contract terms.
What makes your business high risk?
There’s no middle ground as far as business risk classification goes — you’re either just high or low risk. From there, matters get a little more complicated since there are no hard and fast rules of what a makes a business low or a high-risk. Guidelines differ from one service provider to another, with some having more stringent measures than others. It’s in your best interest to shop for the best rates and terms on the market before inking a deal.
Your business is likely to qualify as high risk if it has a high level of chargebacks or outright fraud. In essence, that is the reflection of your customer’s behavior than that of your business. On the other hand, if your business is located in a different country, but is selling to the United States, you are likely to be doomed high risk too. Apart from the strong possibility of fraud, lax banking regulations in your home country can work against you.
The nature of your products also plays a crucial role in determining your risk classification. You would be surprised to know that not only sexually oriented materials and drug paraphernalia are on the high-risk categories. Brokerage firms, law firms, collection agencies, blogs, Amazon stores, and real estate also fall in this category.
Should you be worried?
Processing payments through credit and debit cards can be risky, but it works. Despite the high asking fees, a high-risk merchant account can present you with many advantages. For starters, it opens you to a world of possibilities when looking for business opportunities. You can go after some of the most lucrative sectors that the more risk-averse entrepreneurs tend to stay away from.
Again, given that high chargeback levels are a recognized and expected risk, these accounts come with minimum chargeback penalties. That means your service provider is unlikely to close your merchant account due to excessive chargebacks. You can carry on accepting payments from other customers even in the face of spiking chargebacks without any disruption of service.
Processing companies examine many factors before considering a business to be either high or low risk. If your business falls in the high-risk category, you will pay a little more in processing fee. However, that shouldn’t deter you from pursuing a lucrative line of business. In many cases, the costs pale in comparison to the amount of money you stand to make by exploiting those high-risk opportunities.