By Chris O'Donnell
Our newest e-commerce merchant was adamant. "Your company bills itself as a high-risk payment processor," the e-mail said. "Absolutely nothing public." We had recently launched a website dedicated to 300-word featurettes on our merchant customers. Some merchants were happy to participate; others didn't return my calls.
The aforementioned merchant, who had previously been shut down by a major bank, was enthusiastic when I interviewed him. But when I informed him his story would soon go live, he made it clear that, even though he was processing with us, he no longer wanted his story on our website. He despised the tag "high risk," even though it was the proper label for his business. I wanted to explain to him that high risk means startups, subscriptions, high volume and high ticket – not just adult content and gambling – but he wasn't in the right frame of mind for listening.
Merchants, specifically startups, are usually full of energy and drive when launching an e-commerce business and can overlook the variables involved in accepting payments. Then it hits them, and they ask, "What do you mean I am considered high risk?" And third-party processors are forced to educate them. Level of risk is not just based on industry type.
Sure, industries such as adult/emotional content and online gambling are high risk because banks are leery of associations with them. Alas, however, travel, magazine subscription, technical support and nutraceutical businesses – because of their traditionally high chargeback rates – are also among the industries deemed high risk.
If a payment processor, banker and credit card employee were asked to define what makes a business high risk, their criteria would likely be the same, though each would have a unique order of importance. Determining a merchant's risk factor hinges upon the processor, bank and credit card issuer protecting themselves financially. And the variables are many.
The three might agree the top criteria would be the industry type. Adult/emotional content and online gambling, which are stigmatized, and tobacco and e-cigarettes, which have health concerns, make banks nervous. Other factors can cause high-risk classifications, too, even for merchants with pristine financial histories, for example:
Weathering the high-risk tag comes down to cohesion between the merchant and third-party processor: the merchant operating legally and legitimately, and the processor educating and monitoring the merchant. It is a delicate balance, but one that can be achieved with due diligence.
Chris O'Donnell is a Senior Copywriter for the Instabill Corp. in Portsmouth, N.H. Instabill is a full service provider of merchant accounts to e-commerce, MO/TO and POS businesses. A resident of coastal New England, O'Donnell is also a contributor to The Daily News (Newburyport, Mass.) and Newburyport magazine.
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