When people hear the term “high-risk merchant facility,” they often assume it is illegitimate or only used by disreputable businesses. Various other misconceptions are prevalent among regular merchants and even those already using such accounts. In this detailed article, we will address some of the most common misconceptions surrounding high-risk merchant facility.
Misconception 1: All high-risk businesses are illegal or unethical
This is one of the most common misconceptions, stemming from the term “high risk.” Many believe these merchant accounts are unethical or illegal. However, high-risk merchant accounts are vital for businesses operating in industries that financial institutions consider risky. It is important to note that high-risk merchant accounts are not provided to illegal or prohibited businesses.
Here, “risk” refers to a combination of credit risk, reputational risk, and transaction risk. Credit card processing companies maintain a list of supported industries and only work with merchants within those categories. Industries are generally categorized as low-risk or high-risk. Some of the most common high-risk industries supported by credit card processing companies include:
Online dating
Escort listings
Adult toys, camsites, adult video sites
CBD, vapes, and paraphernalia
Auctions
Bail bonds
Cannabis
Coaching
Collection agencies
Continuity/subscription offers
Credit repair
Digital goods
Document preparation
Extended warranty
Fantasy sports
Money service businesses (MSBs)
Multi-level marketing (MLM)
Nutraceuticals (Nutra)
Pawn shops
State lotteries
Sweepstakes & raffles
Telemedicine
Timeshare
Travel (including airlines, cruise lines, and related verticals)
Industries are typically categorized as high risk due to high chargeback rates, regulatory complexities, reputational challenges, and the high volume of card-not-present or e-commerce transactions. Some industries are also labeled high risk due to large ticket sales. These industries are not considered high risk because of any inherent illegality or unethical practices. However, high-risk merchants must undergo thorough scrutiny before approval. After this process, most merchants receive approvals.
Misconception 2: High-risk merchants always pay exorbitant fees
While it’s true that high-risk merchant accounts are more expensive than low-risk accounts, the idea that these accounts are prohibitively expensive is a misconception. The high-risk merchant processing sector is competitive, leading payment processors to offer reasonable pricing. By paying slightly higher transaction fees, merchants gain access to additional features such as enhanced fraud prevention tools, chargeback protection, robust customer support, and the ability to accept international transactions 24/7. It is also essential to note that pricing varies between providers. Merchants should compare offers from different providers and make an informed choice.
Misconception 3: Getting approved for a high-risk account is impossible
High-risk merchants often face rejections from traditional banks and payment service providers, leading to the belief that obtaining a high-risk merchant account is impossible. However, specialized payment processing companies cater specifically to high-risk merchants. These companies offer customized services and maintain high approval rates for merchant accounts. While the approval process can be tough, it’s far from impossible. To improve their chances, merchants should prepare financial documents, implement website policies, and train their support teams to reduce chargeback rates, all of which can significantly increase the likelihood of approval.
Misconception 4: High-risk accounts are only for specific industries
While certain industries are categorized as high risk and require special registrations and fees, high-risk merchant accounts are also available for businesses in other sectors. The classification of “high risk” can arise from various factors, including the industry type, high chargeback history, large ticket sizes, previous account shutdowns, or regulatory challenges. High-risk merchant accounts can accommodate merchants from low-risk industries as well.
Misconception 5: Chargebacks are always the merchant’s fault
Many high-risk merchants believe chargebacks are always their fault. However, chargebacks can occur for many reasons. While merchants may sometimes be responsible, they are not always to blame. Chargebacks may result from fraud, customer misunderstanding, or friendly fraud, where customers dispute legitimate transactions. In rare cases, technical errors can also cause chargebacks. A good high-risk merchant processor provides tools to help merchants dispute and resolve chargebacks.
Misconception 6: High-risk merchants can’t use popular payment gateways
Another misconception is that high-risk merchant accounts can’t integrate with popular payment gateways. Most high-risk merchant accounts come with their own gateways but can also connect with widely used gateways. Merchants typically receive a VAR sheet for easy integration with gateways like Authorize.net and NMI.
Misconception 7: All banks treat high-risk merchants the same way
Many merchants give up after being rejected by a few banks, assuming all banks treat high-risk merchants the same. In reality, each payment processor evaluates merchants individually. Approval or rejection decisions depend on the payment processor, and some banks are more open to working with specific industries.
It’s absolutely clear that many misconceptions about high-risk merchant accounts often demotivate businesses from exploring solutions that could benefit them. By understanding the true qualities, features, and capabilities of these accounts such as fraud protection, international payment processing, and recurring billing merchants can make informed decisions. By partnering with a reputable high-risk merchant account provider like QuadraPay, businesses can not only overcome these myths but also thrive and grow in their industries. Contact the team at QuadraPay today to learn more about high-risk merchant facility.
