High risk credit card processing is for businesses involving a visible element of risk, due to which they do not qualify for standard merchant accounts offered by banks and third-party processors. However, in many cases, denial of an application is also due to poor credit rating or unpredictability in the functioning of the business. There are many businesses that suffer a lot due to this phenomenon and have no other choice but to opt for obscenely higher interest rates charged by some credit-card processors.
Factors that Deem a Business to be High Risk
- Poor credit rating
- Potential fraudulent charges
- Uncertainty over long-term sustainability of business
- Minimal capital investment and investment structure of business (For example: Small scale business and home-run operations)
- Vulnerability to uncontrollable factors (For example: Any business located in an area prone to natural calamities).
Some other examples of high-risk businesses include gambling business, adult entertainment industry, seasonal businesses, dating services, etc.
The Drawbacks of Being Categorized a ‘High Risk’ Business
Rate structures applicable to high risk businesses invariably try to fleece out a higher premium that can be leveraged to offset the probable loss by transactions conducted by that particular business. What it boils down to is the fact that regardless of the type of merchant account approved for a high risk business, the discount rate and subsequent cost per transaction will be higher. In addition, the rates may be determined by the volume of transactions, rather than a predefined percentage.
The Way Out of the Situation
There is no point to keep giving independent processors exorbitantly high rates, nor is it advisable to completely eliminate the aspect of credit transactions. Another option is that high risk businesses can opt for an overseas entity to underwrite their transactions; however, this can be a risky option, more so if proper regulations are not followed. This procedure should be opted for only after extreme caution has been taken and the trustworthiness of the underwriting company has been established.
Fortunately, there are some high risk credit card processing companies that do not refuse any business on these dated terms as they have a proper structure in place to identify the risk/return ratio. Possessing in-depth knowledge about the way around the traps and crevasses of the credit world, these companies do not charge any extra fee or interest.
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