Every business needs a payment processor for debit and credit. Not even criminal enterprises run cash-only registers anymore. Someone selling TV sets that “fell off the back of a truck” is going to have an app on their phone that lets them take credit card payments. It’s just a part of doing business in the modern world. If you run a very small business then you can probably get away with just using a service like Paypal for this kind of thing at first, but as you upgrade your company, you’re going to wind up needing a payment processor that can work in higher volume.
Of course, you might not find out until you reach that point that you don’t just need any payment processor, but one that specializes in high-risk merchants. A merchant can be categorized as high-risk depending on a number of factors, but it all comes down to chargebacks. If the evidence suggests that you’re going to be at a higher risk for chargebacks than the next business over, then you are classified as a high-risk merchant, and you’re going to be better off looking for a processor that specializes in that, because a standard processor either won’t cover you, or will, but only while charging you considerably more than any other business they work with.
There are essentially two ways to wind up being classified a high-risk merchant. The first is to simply get a lot of chargebacks. If your chargeback rate is a lot higher than your industry’s average, then the problem probably relates to how you’re doing business. There are a lot of reasons this could be happening, which we’ll get into later. The second and more common way to be classified as a high-risk merchant is to be doing business in a high-risk industry. These industries include cigarettes, firearms, alcohol, airlines, gambling, even eBooks adult entertainment and vape shops. What makes an industry high-risk also comes down to chargebacks, but in this case it’s more like buyer’s remorse than business practices.
It’s not uncommon for someone spending money at an adult entertainment store to be embarrassed by the purchase later and deny the charge just because they don’t want to admit to making the purchase. In the case of firearms and gambling, these are industries where certain customers have an impulse buying problem. If someone buys a five hundred dollar pistol and then realizes they didn’t really have five hundred dollars to blow, they might choose to get a chargeback rather than try and go through a refund or exchange process. Some of these businesses also have certain political complications or a social stigma attached that can affect businesses that sell these products and services, and this contributes to the fact that some people are just, in general, not eager to do business with companies in these industries.
High Risk Merchant Solutions: What You Can Do
Although there are some generally universal rules, every payment processor will have its own guidelines for determining whether or not you are a high risk merchant. Some merchants are definitely high risk no matter who you ask, and others aren’t, and there’s a middle ground where you might be considered a high risk merchant by one processor but not another. So if you’re somewhere around that middle ground, then you might want to shop around and see who’s offering you the best deal. Some merchants actually make the choice to work as a high-risk merchant because it offers certain freedoms.
How Do I Select A Payment Processor?
A problem we see with a lot of payment processors is that they really don’t care about small businesses. If you run a major chain, if you’re turning over tens of millions of dollars a year, then yes, you can expect every processor to roll out the red carpet. If you’re a small company making a few thousand dollars a month, if you run a single location and you have your good weeks and bad weeks, some of these services are barely going to give you the time of day. Some payment processors are more than happy to rest on their laurels with one or two major accounts. Other payment processing companies may be a little more eager to treat all their customers as important.
So first off you need to consider what your niche is in this area. Maybe you’re a high risk merchant, but that doesn’t mean that you should settle on the first processor willing to return your calls. Within the high risk niche, there are other niches, and each of those niches have niches, as well. Some payment processors may be willing to cover, say, a “head shop,” but they might wish they didn’t have to, and they might not be eager to treat you as well as they do other companies they work with.
It’s not just industries, of course, it’s also income level. If you run a small business, then you want to look for a payment processor that tends to get positive feedback from other small businesses. If you run a larger business, look for payment processors who specialize in your economic range.
Don’t Get Desperate
One of the worst decisions that you can make is to start getting desperate. If you’re having trouble finding a payment processor who wants your business, this can make you easy prey for shadier companies that will charge you outrageously high rates while giving generally poor service. Don’t get desperate. Don’t settle for just any payment processor who will have you. You can stick to Paypal while shopping around for a payment processor. That may not be ideal, but it beats getting locked into a five year contract that will drain half your profits.
Ultimately you’re looking for a partner. Some of these companies want you to think they’re doing you a favor. They’re not. It’s a mutually beneficial arrangement. If someone wants you to think they’re doing you a favor, it’s only so you won’t know you’re getting ripped off.
Worst case scenario, if you just cannot find an honest payment processor who will take your business, then consider how you’re running your business. To clarify: Yes there are processors who specialize in high risk merchants, but there are degrees of high risk. Some merchants are high risk because of their industry, others simply have very poor business practices, and others just need to make a few corrections. You might be high risk by default because of your industry but you can still have more options for payment processors by bringing your risk down to some degree.
Here are some ways you can do that:
- Dispute every chargeback. You probably won’t get many chargebacks overturned, but by disputing them you have at least a precedent wherein you have not assumed fault. When you dispute every chargeback with the bank that files it, you at least have a sort of paper trail that you can lean on when you need to make a case. And when you make a dispute, make sure to take the initiative to do followup calls. If you wait on the bank or credit card company to call you back, then you’re going to be waiting a long time. So take the initiative, make the followup call, and ask what you can do to make the process go a little faster.
- Make your refund policy easy and simple and obvious. If you think that you’re going to prevent people from wanting their money back by making it really hard for them to get their money back, you’re not. They’re going to get their money back one way or another. If you hide the refund request button on some hidden page of your website, if you make your customers jump through hoops or you don’t offer refunds at all, they’re just gonna go over your head and have their bank or credit card company file a chargeback. And the bank is probably not going to take your side.
- Reconsider what you’re selling. Some items might just be more trouble than they’re worth. Not every convenience store needs to sell liquor if the profit you’re making on those items is less than the extra cost you’re paying for payment processing. If high risk items make up only a small fraction of your sales, then it might be best to cut them out entirely.
This can help you to have a wider range of processors to choose from, and when you work with a processor that specializes in high risk merchants, you may be able to get a better deal if you’re less high risk than another business. Many processors in the high risk niche will work to offer a deal that correlates to how much risk they’re taking on rather than just handing everyone the same boilerplate offering.
Feeling Them Out
One of the best ways to determine which payment processor to partner with is to feel them out for yourself. Reviews and business ratings are nice but they were written by someone else, not by you. And even if these reviewers run very similar businesses to yours, there may be subtle differences that result in two very different experiences between your business and theirs. Maybe a liquor store in the same zip code, earning roughly the same monthly income and selling the same products had a great experience with this processor. But maybe your store is in a low-rent neighborhood with a somewhat poorer population, and that may result in a higher rate of chargebacks.
The first step is to simply talk to the processor. Either through email or on the phone. Get a feel for them. Sometimes it comes down to gut instinct.
Do they seem honest? Do they seem to have your best interests in mind?
There are some companies in this field that are on the lookout for, well, suckers. People who are desperate and will take what they can get. Make sure that’s not the kind of processor you’re dealing with.
Second, you’ll want to read the fine print. If they have a sample contract you can look at, great. If not, see if you can get some information from someone else who’s worked with them, and get whatever info you can from their website. If there’s anything in the legal documentation that you don’t quite grasp, Google it. And if you can’t find satisfactory answers online, talk to your business lawyer. And if you don’t have a business lawyer, see if you have any friends who know a little bit about business law. You never want to sign something you don’t understand.
High risk merchants often suffer an unfair stigma attached to their industries. This makes the B2B field in this niche a bit of a breeding ground for some shady fly by night companies. But there are also some processors who are just looking to give good service at a fair price.