High Risk Processing
“High Risk” refers to a business or merchant that features high Chargeback Exposure, where the bank is accountable for all chargebacks if a merchant’s business were to cease operations for any reason. Most businesses categorized as “High Risk” are actually wrongfully named where they simply shall be more appropriately labeled as “Harder to Place”
A harder to place merchant is a business looking to process credit card transactions that a typical acquiring bank or processing bank will not approve or allow to process based on a series of details about their business, or simply are not in compliance within the bank’s underwriting guidelines. In this scenario the majority of business considered harder to place don’t know it until they are declined by their first processor. It is important to understand that these tend to have nothing to do with chargeback exposure.
One such example are travel agencies as there are multiple factors that make this industry considered “high risk”. The majority of travel agents are honest people who run legitimate sales through their business, but the real problem lies with what is outside of their control. They can do an excellent job booking a vacation well below market price, but they can’t compete against last minute deals from hotels and major airlines that significantly drop their rates days before the vacation starts due to a surplus of available rooms/seats. In this stage it’s their customer wherein lies the problem, as they tend to book the new vacation themselves and dispute the original charge by the travel agent through the card company because they are likely to win the dispute. They also don’t have any control over how their vendors operate, and if their customer has a bad experience on their vacation for any number of unforeseeable reasons they are likely to get buyer’s remorse and dispute the charges.
We will use an electronic cigarette as a good example as most banks reject this business type on principle alone, citing that it’s too easy for a minor to purchase the products online due to age verification software being fairly easy to bypass. These processors would likely auto approve retail e-cig merchants without thinking twice. It’s the potential of taking part in facilitating the sale of nicotine products to minors that the processor is avoiding, and has nothing to do with the potential losses it could incur from chargebacks.
As far as we know banks have been doing this a lot longer than we have, and they’ve seen enough to know that even good business can go bad. Think about how many low risk merchants had to close or cease operations in the years following the financial crisis of 2008 and business owners being affected the COVID19. Acquiring banks tend to think, how much do we stand to lose if this company closes its doors tomorrow? Banks are typically on the hook for chargebacks for six months after the delivery of a product, not the date the payment was taken by the merchant. If in January a cardholder were to purchase a ticket for an event that took place later that year on New Year’s Eve, the bank that processed that transaction would have 18 months of exposure on that sale. That means the bank has to worry about that sale being disputed by the cardholder for a year and a half. A lot can happen in that much time.
For all “high risk” merchants the pricing is a factor determined by underwriting taking it to account for approval decisions. Usually pricing is higher. In some cases our banks will give us pricing guidelines depending on the industry type. Also the application could be declined or not considered if the existing processing is priced below certain rates. Other banks will simply suggest to price at minimums to be considered. At Safe Merchant we try all our customer to be fairly priced to cost because we want your business for the long run, remember, you grow, we grow.
This practice of restrictions sometimes done by the banks is to protect themselves from fraudulent accounts and chargebacks. By applying a lower monthly volume limits, banks reduce the amount of risk they take on initially. Once your account has been established the processor will welcome you to increase your monthly processing limits.
We as a processing company hate processing reserves just like any merchant does, we cringe if it’s a condition for approval. However we do all what it takes to avoid a reserve unless there are no other options. In some cases processing with a reserve is useful to show the bank that in fact the business runs clean with low chargebacks. There are different types of reserves, but they all involve holding a percent of your monthly volume until you reach a predetermine amount. You will receive this amount back after established history has been built.
We as a processing company hate processing reserves just like any merchant does, we cringe if it’s a condition for approval. However we do all what it takes to avoid a reserve unless there are no other options. In some cases processing with a reserve is useful to show the bank that in fact the business runs clean with low chargebacks. There are different types of reserves, but they all involve holding a percent of your monthly volume until you reach a predetermine amount. You will receive this amount back after established history has been built.
Most of our merchants are setup with 24/48 hour funding, deposits rarely happen on Saturdays, it depends on certain bank rules, as well as the merchant’s bank delays. In case of merchant approved through offshore solutions only, funding schedules are typically delayed by 1 week, there could be possible situations where the merchant is placed on a 100% reserve until the risk department can verify the initial sales with the cardholders. In this cases merchants are informed before start processing.
Timeframe to underwrite could range from auto-approval to ten business days. Most of domestic accounts take only 2-3 business days to get a decision from underwriting (when all supporting documents are available) in most cases delays happen when requested documents are not available when requested.
If your business has been shopping around for approval, chances are that documentation has already been required, we usually require: DL or ID, voided checks or bank letters, 3 to 6 months of Banks statements, 3 to 6 months of processing statements, W9, marketing materials, etc.
This vary by industry and case by case, but it might include additional supporting documents, removal of restricted products, images and sometimes services from your website. Financial information might be required, company’s tax returns and financials or even personal bank statement or personal tax returns might be helpful.
This vary by industry and case by case, but it might include additional supporting documents, removal of restricted products, images and sometimes services from your website. Financial information might be required, company’s tax returns and financials or even personal bank statement or personal tax returns might be helpful.
Typically we will ask the same questions we ask a regular domestic (easy to approve account)
- Do you currently process credit cards? If so, how long have you been in business?
- What is your monthly volume? And what is your average transaction ticket?
- Do you offer services face to face, or do you sell on your website or over the telephone?
- What is your chargeback percentage?
- Have you had an account shutdown in the past? If yes, where at and how long ago?
- Are you on the TMF list? (Terminated Merchant File) If yes, WE STILL have options.
All these questions are used to evaluate risk for your benefit. Pre-vetting it with our banks that accept your business type only and avoid running your credit, getting a decline and save you time and money.
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