Here is a list of merchant types that are considered high risk:
Adult novelty, Alcohol (card-absent) Website, Bail bonds, Business Opportunity, Collection Agencies, CBD, Continuity Programs, Dating Sites, Finance Related Services, Firearms, Gentlemen’s clubs, Nutraceuticals, Paraphernal (Headshops, Smoke Shops), Tobacco, Vape, Nicotine, Ticket Brokers, and Travel Agencies.
They are considered “High Risk” because these industries experience a lot higher incidence of chargebacks and fraud. When a customer requests a chargeback from a merchant, the money is immediately backed out from the merchant’s bank account, while the chargeback reason is researched. The merchant has a short period of time to prove the charge was indeed legitimate and products or services were acquired by the customer. If proof does not show the charge was legitimate, then the money is returned to the customer. Sometimes the customer is fraudulently claiming a chargeback but nevertheless has the knowledge of how to scam the system.
Let’s consider a neighborhood CBD store as an example. Small business merchants tend to run a tight cash flow business. So when a merchant gets a high dollar chargeback, it is sometimes hard to handle the credit card charge reversal from their processor. If the reversal causes an overdraft, then overdraft bank fees exacerbate the problem even further.
If the credit card processor can’t pull the chargeback reversal from the merchant’s bank account because funds are low, the processor adds a penalty fee and tries and tries again to pull the money owed. Each try has another fee attached. The processor has the liability to cover the money. The processor attempts to recover the money, but if the merchant closes his doors, the processor is left with the loss.
For these reasons, high-risk businesses are charged higher rates for processing as a built-in insurance policy.
There are a small percentage of processors who are setup to properly handle high-risk businesses. High-risk merchants must be prepared to pay a higher rate, because of the inherent higher risk of fraud and chargebacks. If you are such a merchant in such an industry, I suggest you toss the higher rate up to overhead and build it into your pricing.
Taking credit cards is a privilege and helps you grow your business. People don’t carry much cash anymore or checks. Plus a high-risk business probably won’t want to take the risk of accepting personal checks. Ecommerce high-risk businesses have no other choice than to accept credit cards.
Not having the ability to accept credit cards is a sure way to turn away customers. After all, your competitor will likely be already set up to accept credit card payments. And all your competitors are in the same boat paying higher rates for processing.
Electronic Money Company does have a high-risk solution if you are in such an industry. Give us a call at 505-296-2847.
We look forward to answering your questions.
Gingergaye Hollowell
President, Electronic Money Company
