High Risk Businesses – Do The Banks Want You?

A merchant is considered high risk business if the bank believes acceptance of a merchant will lead to a higher than usual risk of financial loss. High risk businesses can still obtain merchant processing. But, it often takes expert advice to determine which acquiring bank is best suited to handle the specific needs of your high risk business.

It is well worth-while for a High Risk Business to seek the expertise of a payment processing professional who understands how best to package the application and how to best present your business to the right banking officer.

In addition, any business will want to consider establishing accounts at more than one bank and often in more than one jurisdiction. Like any other business operation, redundancy of payment processing accounts protects your business from unforeseen contingencies.

Why do banks worry about high risk businesses? The answer is simple. Banks are concerned about chargebacks.

A chargeback occurs when a consumer calls the issuing bank and disputes a charge. The consumer has the right to dispute a charge up to 180 days after buying a product or service. Therefore, the bank is ultimately responsible for contingent liabilities of 6 months on every purchase made using a card.

There are many reasons for chargebacks. Some are valid. For instance, a consumer may not have received merchandise or a merchant may refuse to refund money to an unhappy consumer. Sometimes a consumer calls the bank rather than calling the merchant resulting in a chargeback being issued.

Sometimes, neither the business nor the consumer is to blame for chargebacks. Chargebacks may be caused by identity theft, fraud and cybercrime.

Millions of Americans are affected by identity theft each year. The television show “Dateline” reports that a stolen identity, including all credit card and banking information, can sell for as little as $5 on the internet.

Within minutes, merchants can be targeted by fraudsters around the world buying items using stolen credit card information. Chargebacks ensue. The merchants and the banks lose money. And consumers are angry and frightened by the loss of their identity.

Merchants can dispute chargebacks. The merchant may even win the dispute. But, the bank sees a record of dissatisfaction on the part of consumers. And, the chargebacks still remain on the merchant’s processing statements and are still considered chargebacks when account ratios are calculated.

The credit card companies insist that the merchant account portfolio of the banks remain under 1%. If a merchant consistently exceeds the 1% threshold, the bank is fined. The longer the merchant stays over the threshold, the higher the fines become. If a bank continuously has a high percentage of chargebacks from merchants, the bank risks losing its ability to issue merchant accounts.

If a business continues to have chargebacks, fines are assessed against the bank. The bank, in turn, passes the fines on to the merchant who may or may not be able to pay. If chargebacks do not quickly fall below 1%, the bank will terminate the merchant account. As a result, the merchant may go out of business or declare bankruptcy. Leaving the bank financially responsible for the chargebacks.

Carefully watch your merchant account processing statements each month. Nip any chargeback problems in the bud, before they escalate and threaten your merchant processing account.

If you are a High Risk Business, avail yourself of the expertise your payment processor has to help you manage your account. There are excellent specialized tools available that will minimize chargeback risks while maximizing sales results.