Are You Considered High Risk for a Merchant Account?

Does your business accept credit cards? Are you considered high risk? How do you gauge where your business model fits within the Merchant Account world?

In life, it’s all about who you know. When you need a good mechanic, lawyer, accountant, doctor, etc., it’s almost always better to have a trusted resource to lead you in the right direction and get you in good hands. This mantra is directly applicable to a high risk merchant account.

The FTC, FDA, Visa & MC are constantly changing their rules, regulations and underwriting guidelines. Recent years have seen heavy crack downs on many high risk business models. Some current examples of industries affected include E-cig, CBD products, Pay Day loans, Affiliate/Direct Response Marketing, Negative Continuity, Online Gun Sales and many Nutraceuticals.

If these products are advertised and sold as a straight, one time sale with transparency then you may be ok; but the “Free Trial” schemes with auto-enroll continuity are a thing of the past.What might have been approvable five years ago, or even six to twelve months ago, may not be the case today.

Having a backup solution in place with a bank that can approve you is essential for these higher risk models to stay alive and in business. For example, we at NDMS offer industry-leading payment options for businesses of all types and sizes.

Many banks won’t work with “High Risk” for one of two main reasons: Reputational Risk and/or Financial Risk.

• Reputational Risk – ex: Adult content
  
  
• Financial Risk – ex: a Cruise Ship, an Airline or a Furniture Store

Today a business owner needs to be savvy, nimble, prepared and aligned with multiple banking options in case your existing relationship can no longer work with you.  We see higher risk businesses that get terminated without much, if any notice. 

It’s no easy task for a business owner to manage a direct marketing campaign, fill and ship orders flawlessly, securely store hundreds of personal credit cards and incorporate recurring billing. 

Add in significant volume with thousands of daily transactions occurring through multiple channels and it then becomes easier to understand the importance of having a reliable, experienced and trustworthy relationship with a Merchant Account provider who can consult and guide you through.

If your business falls in any of the following categories you are definitely considered High Risk, and this is only a few of them.

• Health & Beauty
  
  
• Skin Care
  
  
• Consulting/Coaching
  
  
• Nutraceuticals
  
  
• Celebrity Endorsements
  
  
• Furniture
  
  
• Jewelry
  
  

It’s usually because they are susceptible to Chargebacks, and/or the deceptive marketing practices that their industry competitors have employed, thus ruining it for everyone.  There are several ways to mitigate your chargebacks and to ensure that you stay within the mandated Visa, MC, FDA and FTC guidelines.

What is a Chargeback?

When an unsatisfied customer claims they did not receive the goods they thought they were buying.  This could be due to a defective product, or the product could be inconsistent with what was advertised and promised. 

The customer then calls their respective credit card issuer and complains, “I want my money back.”  Thus, the purchase is reversed until it’s investigated further to confirm details, and to officially rule on whether the chargeback was legitimate or not. 

There has also been an increase in fraudulent chargebacks by consumers, meaning they maliciously claim a chargeback for illegitimate reasons to try and receive a free product, service or credit.


What are best practices to avoid and reduce Chargebacks?

• Selling a good product without any trickery or deceptive marketing.
  
  
• Having a good customer service department in place; very accessible, making it easy for the consumer to reach you upon questions.
  
  
• Having very clear return policies in place and honor them.
  
  
• No auto-enroll membership programs, opt-in OK.
  
  
• Enable or work with chargeback tools and technology

What are the allowable Chargeback thresholds for Visa and MC?

There are various guidelines and thresholds for Chargebacks allowed.  Companies that exceed these thresholds are viewed as problematic, and their ability to accept credit cards in the future may be hindered; higher rates, reserves and volume restrictions may apply. 

Sometimes there are exceptions by Visa and MC to these ratios, but the leniency on this appears to be shrinking as many merchants are being terminated immediately.

• For Visa, thresholds for Chargebacks are to be less than 1% of the total transactions, and there are also regulations on total chargeback volume and total number of monthly chargebacks (25, 50, 75, 100)
  
  
• For MC, the ratio is .50%

What is a Reserve?

A reserve is sometimes required on higher risk merchant accounts due to business model/type, previous processing history and/or personal credit.  A reserve is a separate holding account that’s designed for the merchant’s protection. 

A portion of the merchant’s monthly volume is held in a separate reserve account until a minimum account balance is met.  Typical reserve amounts usually equate to around one month of average credit card processing volume.  The reserve account is 100% the merchant’s money, similar to a savings account for emergencies.

Jason Wilson is VP Partner Relations with (NDMS) National Discount Merchant Services. Bannerview has partnered with NDMS to assist high risk businesses in getting approved for a merchant account. They are based out of Los Angeles and have been in business for 12+ years.  They are one of the largest independent processors on the West Coast, with sales reps across the country and with in-house underwriting. In partnering with NDMS, the ability for businesses to process payments online with products like BannerCharge becomes much more accessible.