Finance

Is High-Risk Credit Card Processing Safe? Find Out.

All types of businesses come with their own set of risks. With rising e-business ventures across the globe right after COVID-19, most of us have changed our consumption mode. Not only have some people shifted to online purchases, but most have also opened up online stores to support their venture and reach out to a broader audience. With online purchases come online payments. High risk credit card processing is associated with those businesses that have a high risk of chargeback failure.

Take the travel industry or the hospitality industry, for example. So many of us book tickets with the sole reason of the “free cancellation” option being available. Once the cancellation goes through, the customer needs to get a refund hence the chargeback. These transactions can have a negative response on the businesses and their stakeholders. Moneylenders like banks avoid dealing in such volatile industries due to the risk associated with them. Hence, High-risk credit card processing is an option provided by financial companies or institutions that offer services like opening a high-risk merchant account that helps deal with such issues.

How to solve the problem of high-risk credit card processing?

There are financial institutions that offer multiple additional services. These services include opening a high-risk merchant account, especially for businesses falling under the “high-risk” credit card processing category. This way of operation helps organizations save up on the high merchant service charges. These charges are primarily incurred due to the high volume of chargebacks. However, if your business gets listed as a “high-risk” merchant account, you can reduce these extra charges dramatically.

Also Read:   Creative Marketing Ideas for Credit Card Companies

How Does It Work?

There are two types of merchant accounts. One is the “low-risk” merchant account, and the second is the “high-risk” merchant account. The difference between the two can be easily identified and makes it easier to categorize industries and businesses that may be part of them. In a low-risk merchant account, the venture only deals with $20,000 or fewer sales worth monthly.  However, in a high-risk merchant account, sales volume can be exceeded by over $20,000. There is also a difference in the industry for both types of accounts. It is essential to understand why some companies may be recognized as low-risk. These companies may be in stable industries that are not as volatile are other business sectors.

For example, industries like clothing, textile, necessity goods have a lower risk of chargeback or fraud when compared to sectors like travel, online gaming, brokering, auctioning, etc. What makes the other industries volatile? External operational conditions like politics, economy, etc. Not only this, but the location of the operation also matters. Being in 2021, where globalization is at its peak, we have access to a whole new virtual world where any resident sitting in Country A can deal financially with a resident of Country B. The governments of these countries can limit transactions and trade between nations through restrictive measures but cannot stop it. The reason why this may help in categorizing industries and businesses is that certain countries may not be stable politically and financially. Hence, doing business with merchants or residents from those nationalities may put the ventures at high-risk. Most developed countries are considered low-risk zones compared to developing nations.

Also Read:   Top 5 Technologies Impacting the Insurance Industry

Pros of High-Risk Credit Card Processing through High-Risk Merchant Account?

1. Lesser payment processing fees:

If your high-risk business is not registered as a high-risk merchant account, there is a high chance that you will have to pay significantly high payment processing fees. For example, there is a standard percentage of interchange rate during every business transaction. The % is fixed, but the total amount may vary depending on the overall value. In some cases, the processing fee may be $2 but, for higher amounts, the percentage may end up resulting in the charge being $500. This charge may differ from transaction to transaction but can be reduced or avoided by making your high-risk credit processing safe by registering under a high-risk merchant account. The percentage of interchange fees is less, and hence the total amount deducted will also be less.

2.  Lower chargeback fees:

All credit card transactions come with some sort of certainty and security for not just the merchant but also the retailer. When high-risk businesses in these volatile industries experience cancellations or frauds, the bank/financial facility also needs to secure themselves. Hence, with each cancellation or refund, the businesses need to pay a chargeback to the banks to refund the amount. This transaction fee varies on the amount but may be reduced by registering under a high-risk merchant account. There are specialized banks/financial institutions that understand the risks associated and support these volatile, high-risk businesses by offering additional services compared to low-risk accounts.

3. No monthly Caps:

By registering under a high-risk merchant account, there will not be a cap on the volume of transactions. For example, if you do not register under a high-risk merchant account, your business may have a reserve or a cap of $20,000 and will be considered only for the benefits of a low-risk merchant account.

Also Read:   Eric Dalius gives guidelines on the financial future of the millennials

Cons of High-Risk Credit Card Processing through High-Risk Merchant Account?

1. Takes more time for the account to get approved:

Setting up high-risk merchant accounts can be highly time-consuming and tiring. The process is long and requires the business owners to submit various documents and fill up multiple forms. These documents and paperwork test the business’s ability to be eligible for a high-risk merchant account, and hence the process is lengthy. However, once completed, they can enjoy and avail the benefits/services offered to high-risk merchant accounts endlessly.

2. Service Fees may be high:

Finding the right financial institution/bank is the key to avoiding high service fees or hidden charges. Since these high-risk accounts deal with volatile markets, stakeholders and conditions, some banks leverage that by charging high processing fees, which drain the business’s liquidity. By finding the right fit, these extra charges can be minimalized.

Conclusion

Most people are apprehensive about dealing with high-risk credit card processing due to the risks associated with the same. However, the process is easy when collaborating with the right stakeholders. It is unavoidable to ignore its benefits, especially with the rise in digital businesses around the globe.

admin
Technewsgather – Gathering All Latest Tech information that we cover Technology, Gadgets, AI, VR, Apps Business information Tech News Gather is always open to new ideas and suggestions from our readers and writers.
https://technewsgather.com/

Leave a Reply

Your email address will not be published. Required fields are marked *