Merchant Accounts for High Risk Businesses
Soar Payments is focused on offering high risk merchant accounts for some of the hardest to place international and US high risk businesses.
Voted the #1 High Risk Credit Card Processor in 2015 and 2016 Soar Payments offers comprehensive high risk merchant services, which include reliable, affordable and secure credit card processing, ACH processing, and integrated fraud protection and chargeback management services.
Our goal is to be the undisputed best high risk merchant account provider. To do that effectively, we have to understand and cater to the unique needs of the high risk merchants and industries that we specialize in. To that end, we put together the below “high risk merchant account cheat sheet”. It’s designed to give business owners a single place to obtain all the information they’ll need to obtain high risk merchant accounts, manage those accounts, and succeed when accepting credit and debit card payments.
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Who is Considered a High Risk Merchant?
The category of high risk credit card processing includes any business in an industry with one or more of the following characteristics:
- a history of high-chargebacks,
- irregular very high-ticket sales,
- in an industry that large banks are unwilling to support, or
- highly regulated industry.
It is important to note, that this high risk merchant account categorization is based on your business’ industry, regardless of your individual businesses’ track record. Additionally, the high risk category includes businesses who have been dropped by a previous credit card processor, businesses that are on the MATCH or TMF list, companies whose owners have bad personal credit or low credit scores, or businesses who are based outside the US.
A Note From Our CEO
Soar Payments, CEO
Running a small business is flat out tough.
At least that’s what a number of our high risk merchants have told me personally. (One guy I spoke to literally spent 25% of his work-time just managing payment issues before he found us.)
Clearly his experience is extreme, but there’s a lot that can go wrong with your high risk merchant accounts unless you have a good game plan. Things like:
- Losing control of recurring charges
- Getting bombarded by chargebacks
- Not having a high enough processing volume cap to grow.
The good news is, these problems are all solve-able. It took me about 8 hours of research, but I put together the below “cheat sheet for high risk merchant accounts” for entrepreneurs in high-risk industries to help you avoid these pitfalls.
It’s my sincere hope that you find this article useful (because I’ve got a lot of work in it)… and if you need help with your credit card processing, I’d love to help you with that, too.
P.S. If you own a business, and want affordable and reliable high risk credit card processing we can help you (in fact, we specialize in high-risk businesses). Click here to begin a free online application.
February 16, 2016
Getting a High Risk Merchant Account
How do I get a high risk merchant account?
This is a pretty basic question, and the answer is pretty simple, at least in theory… apply with a merchant account provider. They’ll complete the application with you, send it to their underwriting department to review the application, and once approved, you’ll be ready to accept payments. If that sounds too easy, its because if you’re a high risk business, it is. Most processors and banks do not offer payment processing to high risk merchants, so you need a high risk merchant account provider.
How do I find a high risk merchant account provider?
If you owned a retail bakery business, almost every bank and processor would be happy to provide you with credit card processing. Unfortunately, for high risk businesses, that isn’t the case. That’s not because the salesperson doesn’t want your business, but rather because their sponsor bank or their processor will not write high risk businesses because of the regulatory and / or chargeback risk. So, the first question you should ask when calling a merchant account provider is, “Do you provide merchant accounts to high risk businesses in my industry?”. And then ask… “Are you sure?”. Because often the salesperson will tell you initially that they do, but then you complete the application process, only to find out that their underwriting department doesn’t.
Does Soar Payments offer high risk merchant accounts?
Yes, at Soar Payments we provide all-inclusive credit card processing services to hundreds of high risk merchants, ranging from startups to businesses processing millions of dollars a month. The process is simple, just complete our 5 minute free online application, then we’ll email you a PDF copy which lists all terms and pricing for your electronic signature. Once approved, you can begin processing. We’ll handle setting up your chargeback management tools and your payment gateway, making the process easy and simple.
How do you get a higher processing volume limit?
Most high risk businesses want to scale their business to $100,000 per month or more in sales, and frankly, as your merchant account provider, we want that too. The problem, is that your first merchant account is typically capped at somewhere between $25,000 to $50,000. So how do you increase your cap? There are two answers:
- Time: A merchant account is in some ways a line of credit from the processor to you. Just as with any business loan, your track record enables you to obtain a larger line of credit. Typically after 3 to 6 months of successful processing (which means keeping a low chargeback ratio, steady volume, predictable transaction sizes, etc.) you can request to have your account re-reviewed and obtain a higher limit.
What is an underwriter looking for when reviewing my merchant account application?
The underwriter’s job at a credit card processor is to make sure that the business is a good risk for the credit card processor to take on. Specifically, he / she is looking at the likelihood that the credit card processor will face losses on the account. Losses occur for credit card processors in two main ways, losses on the account and regulatory fees. More specifically, the underwriter is trying to ascertain the likelihood that large or high numbers of chargebacks will go unpaid, or monthly bills will go unpaid. On the regulatory side, whether the processor is opening itself up to fines imposed by the government, the card brands or their sponsor bank, by facilitating payments on behalf of a merchant that is engaging in fraud or other bad activity, or just a merchant operating in an industry that their bank does not accept. So, when it comes to high risk underwriting, the underwriter is looking for businesses that have some cash in their bank account, appear to have a solid and legitimate business model, and have ownership that appears stable and competent. The more your business meets those criteria, the more likely it is to be approved.
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Common High Risk Industries
While any business with bad personal or business credit scores, a high chargeback history, a startup, or high frequency or high average tickets can be considered high risk on an individual basis, the majority of high risk businesses are labeled as such by the industry they operate in. Some examples of high risk industries include:
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Question? Ask Away. We’re Ready to Help.
Soar Payments, CEO
If you’ve got a question about a CRM, payment gateway, chargeback tool, bad credit merchant account or anything else related to accepting payments in a business, and want some advice, email me your question directly: AdamCarlson@soarpay.com.
Ready to Get Started?
Ready to start accepting payments at your company, Click here to begin a free online application.
Reviews of Gateways for High Risk Businesses
High risk businesses generally accept payments in one of four ways: (1) in person (often called swiped payments), (2) over the phone (aka MoTo payments), (3) through their website (aka eCommerce), or (4) recurring (e.g. monthly auto-payments). For any method other than swiped in person transactions, the sale will actually be processed through a payment gateway, which is just a piece of software that securely transmits card data to the processor. There are literally hundreds of payment gateways available, but most high risk businesses use one of just a few, which are outlined below:
- Authorize.net Gateway: Created by Visa, Authorize.net is the most popular gateway in use today, particularly for low risk businesses. The reason, is that its very easy to setup, it’s simple to use, and it integrates with almost every piece of shopping cart or CRM imaginable. For high risk businesses, however, it’s generally only the choice of small startup high-risk businesses, because its recurring billing capabilities are limited, and many chargeback management services are better integrated with high risk specific payment gateways.
- Soar Payments Gateway: The Soar Payments Gateway is targeted specifically to the needs of high-risk merchants. Specifically, it offers robust reporting and it integrates with a number of chargeback management services, and virtually every major CRM and shopping cart. Additionally, the Soar Payments gateway is setup to handle multiple logins with different levels of permissions, which is necessary in order to ensure that any integrated chargeback management services can access your gateway, but not be able to run transactions or access any other part of your account.
- USAePay Gateway: If you’re shopping purely on price, USAePay is often the cheapest option. Marketed to price sensitive low risk businesses, some high risk startups will request to use USAePay to save the $3-5 per month in lower monthly costs. It’s a pretty barebones system, but for a small high-risk merchant that doesn’t need chargeback management services, or to balance multiple MIDs, and is using a major shopping cart that they know integrates with USAePay already, then this is a decent option.
How to get a payment gateway? Most merchants purchase their gateway through their merchant account provider because it’s usually cheaper than purchasing it directly from the company. The reason, is that the company gives large discounts to the merchant account providers which, often means they sell the gateway to their customers for cheaper than it retails. Plus, then your merchant account provider will help you configure it, and help you deal with any issues.
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CRMs for High Risk Businesses
CRM (Customer Relations Management) software is used by high risk businesses to manage their customer’s information, profile, track contacts, track the salesperson associated with the sale, manage recurring billing, track the performance of advertising campaigns, send automated emails, and other customer targeted organizational activities. There are dozens of CRMs on the market, but high risk businesses generally use one of a small number of options, each of which is briefly reviewed below.
- Limelight CRM: Branded as “made for marketers, by marketers”, Limelight is the CRM of choice for continuity and recurring billing businesses, particularly in the nutraceutical industry. But beyond those industries, LimeLightCRM is popular because of some unique features that they offer, such as being able to pre-program transactions, call center integration, and integrations with a variety of other services like sales tax calculators, etc. The biggest issue, is that they’re expensive. The company doesn’t post prices, but generally expect a Limelight subscription to cost you more than $500 per month, plus a setup fee in the low thousands. That price point makes it less attractive for anything but the largest high risk businesses.
- Zoho CRM: Priced as low as $12 per month, Zoho is the CRM of choice most small high risk businesses that have outgrown using an excel spreadsheet to manage their customer list and payments. They offer a recurring billing scheduling option, will integrate with a number of payment gateways to issue payments, which is useful for high risk businesses that have accept recurring billing payments.
- Google Sheets: As strange as it sounds, a lot of startup high risk businesses just use Google Spreadsheets, a free cloud based spreadsheet similar to Excel to manage their customer information when they first get started. It’s free, and by pairing it with the Soar Payments gateway, they can achieve basic functionality for very little cost. Obviously, this is not a viable solution for a larger high risk business with more than a few hundred customers, as Google Sheets is cumbersome and wasn’t really designed for this purpose. That said, if you’re looking for the cheapest solution to just get started, it doesn’t get cheaper than free.
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Everything a High Risk Business Needs to Know About Chargebacks
Merchants in a high risk industry have to be aware of their chargeback ratio, because, most often, excessive chargebacks are what causes a high risk merchant to have their merchant account closed by the processor.
How to Calculate a Chargeback Ratio?
A businesses’ chargeback ratio is the number of chargebacks per month divided by the total number of monthly transactions. The dollar amount of the chargeback is irrelevant, as is whether or not you win, lose, or don’t fight the chargeback. Once a chargeback has been initiated it counts as a chargeback. So, if your high risk business has 100 transactions in a month, and 3 customers have initiated a chargeback dispute in a given month, you have a 3% chargeback ratio for that month, regardless of whether or not you win those chargeback disputes
Why does a processor care what my chargeback ratio is?
Your processor faces potential Visa / MasterCard fines if your chargeback ratio exceeds 2%, and they continue to let you process. Those fines are in the tens of thousands of dollars, which means that getting fined for allowing you process will certainly cost them more than your account brings in. That means that once the processor begins looking at your account, and sees that the ratio exceeds 2%, they will almost always terminate your account, so the key is to keep your ratio below 2%. Moreover, chargebacks are an early indication that there may be some issue with your business (e.g. fraud, customer dissatisfaction, inadequate fraud / security protection, etc.) and therefore a credit card processor will use excessive chargebacks as an early indicator that there may be significant financial losses to the processor.
Why do high risk businesses get lots of chargebacks?
High risk businesses are prone to high chargebacks for any of a few reasons,
- Insufficient or inadequate fraud filters or procedures for identifying and blocking risky transactions,
- Many customers are unsophisticated and do not know to call the customer service number listed on their credit card statement when they have an issue with a charge,
- Many customers may forget that they ordered something, and because the high risk business may not have great name recognition, the customer may believe the charge is fraud,
- High risk business owners, particularly startups, may not understand or employ the full suite of techniques and services that are available to keep chargeback ratios low,
- Many startup or small high risk business owners do not understand that in most cases a chargeback, regardless of whether won or lost, contributes to their chargeback ratio, thus they do not immediately grant refunds,
How do I keep my chargeback ratio low?
Before the Sale: In a lot of high-chargeback industries, the key is to quickly identify stolen credit cards, fraudulent or bad sales before they happen. And if you’re using a high-risk payment gateway a lot of those fraud prevention services can be automatically integrated.
- During the Sale: This is obvious, but during the sale, the goal is to fully deliver on the promises made, both implicit and explicit to the customer. So recording salesperson calls, making sure disclaimers aren’t hidden in the fine print but are explicitly discussed, and frankly just providing excellent service.
- After the Sale: Once the sale is made, the goal is to make sure that you stay in front of the customer such that if they are at all dissatisfied, you’re the one that they contact as opposed to their issuing bank (aka the phone number listed on their credit card or credit card statement). That’s achieved through having a clear payment descriptor, a receipt that explicitly mentions what customers with billing questions should do, making sure that your billing support center is friendly, competent, and available, and that they understand that the goal is to make the customer happy first. Finally, it also may mean sending out a follow up email or letter well after the sale confirming that the customer was happy, in order to completely minimize the potential for chargebacks.
- After the Customer Complains: In most high risk industries you can dramatically reduce the number of chargebacks through the above methods, but you likely won’t entirely eliminate them. Once the customer complains to their issuing bank, you can use a chargeback alert system, which will provide you the business owner with a three day window in which you can issue a full refund to the customer, which if you do, the chargeback will not initiate, and your chargeback ratio will not be affected. Note, however, that for chargeback alerts to be effective the issuing bank must also participate in the program. Currently, the coverage is approximately 30-40%.
- Maintain high transaction counts: Your chargeback ratio is determined by the number of chargebacks divided by the number of monthly transactions, regardless of the dollar amount of those chargebacks. So, a high risk business with only 50 transactions per month is at a much greater risk of exceeding their chargeback percentage threshold by a few random chargebacks slipping through, than a business doing 500 chargebacks. Obviously, you can’t simply wish that your company was 10x its current size, but it does mean that small businesses need to be particularly vigilant about making sure that they identify and block fraudulent transactions, and work hard to keep customers happy.
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Need High Risk Merchant Services?
We’ve Got You Covered.
Soar Payments provides all-inclusive merchant services to hundreds of high risk merchants, ranging from startups to businesses processing hundreds of thousands of dollars a month. So when you’re ready, we’re ready.