How to Tell If You're a High-Risk Merchant [INFOGRAPHIC]

by Matt Wollersheim 0

How to Tell If You're a High-Risk Merchant [INFOGRAPHIC]

A company could be labeled as high risk due to their history, payment procedures or chosen industry. A merchant should work with a payment processor who is aware of the specific processes and needs of a high-risk business.

What makes a merchant high risk?

A poor credit history or inabilities to pay back previous loans are obvious reasons for a bank to be wary of working with an individual. Banks are also concerned about business practices that could lead to payment fraud.

International companies that rely on overseas payments are usually labeled as high-risk ventures. Paper checks and phone payments are most susceptible to criminal activities, but credit payments still fall victim to chargebacks. A 2015 Association for Financial Professionals survey found 77 percent of payment frauds involved paper checks and 62 percent of all companies were involved in some form of fraud in the last year.

Certain industries find themselves reoccurring targets of fraudulent payments. The U.S. Small Business Association said retailers could receive a high-risk classification based on the products and services they sell. Businesses mostly operating online such as dating sites or travel agents or merchandise with a poor reputation like e-cigarettes and nutraceuticals receive this particular merchant label.

Choosing a payment processor
There are payment processors with business models specifically tailored to work with high-risk merchants.

A company should locate a processing partner that has a visible history of working with high-risk industries. The processor should provide information on possible fee structures and technical requirements to provide your customers with the payment options of their choice. A good partner will keep the merchant informed on changing regulations.

Most importantly, a high-risk payment partner needs to be an expert in security. Entrepreneur magazine suggested a payment processor can drastically reduce the risk for fraudulent payments and association with an established service will give customers a sense of financial comfort.