How to Accept Payment Online: Low Risk vs. High Risk

If you’re on the hunt for a merchant account so you can accept online credit card payments, you’ve heard of low risk vs. high risk merchant accounts. But what does that distinction really mean? And does it really matter which kind of merchant account you apply for?

The short answer is yes: being categorized as a low risk vs. high risk business will have a big effect on your search for the right merchant account for your business. Many payment providers will be wary of taking on a “high risk” client, since payment providers undertake risk with every transaction. Do any of the following factors describe your business?

  • Your product or service carries reputational or financial risk: Selling any adult material or anything involving gambling falls into this category, as well as goods or services that are purchased well in advance of use, like travel packages. If your industry is know to have a high chargeback ratio, it could be considered risky as well.
  • You’re a new startup: Up to 75 percent of startups fold, so some providers tend to exercise caution when dealing with a brand-new startup business. New businesses haven’t developed a reputation either way, so they’re still considered a bit of a gamble.
  • You have a subscription model: The more time that passes between a sale and when the order is completed, the higher the chance of second thoughts or chargebacks. This means that anything with a subscription model carries a higher risk.
  • You have a low credit score: A credit score is one of the things that providers use to evaluate a business’s risk, and they’ll see a low credit score as an indication of potential financial troubles ahead.

If none of these descriptions sound like they accurately describe your business, you’re likely low risk. But if one or more of the above scenarios sounds like you, your business is probably considered high risk by merchant account providers.

Differences Between High Risk vs. Low Risk Merchant Account

If you’re considered a “low risk” merchant, that’s good news! You can expect to have significantly more choices of merchant account providers than your “high risk” peers. One of the biggest differences between low risk vs. high risk merchant accounts is the amount of fees you’ll have to pay. All merchant accounts will have fees — that comes with the territory. However, if you’re seen as a lower risk, providers will often try to woo you with lower, more competitive fees. This means you can afford to be a little pickier when looking for your merchant account provider, so it’s worth taking the time to find a provider that will offer you the most cost effective secure payment processing solutions.

However, you shouldn’t panic if you think your business might be classified as high-risk. That’s why high risk merchant account providers exist! These providers are prepared to deal with the specific concerns of high-risk businesses. For example, they may have tools in place to fight chargeback fraud if it’s common in your sector. However, many of these providers will also charge you higher fees or other additional costs due to the assumed risk. When comparing low risk vs. high risk merchant accounts, there are definitely fewer high risk providers. That means you won’t have as many favorable options to choose from.

How to Become a Low Risk Merchant

Unfortunately, some of the factors that contribute to a “high risk” label (for example, your industry) are impossible to change. Others, such as how long you’ve been in business, will change on their own. However, there are some factors that merchants do have control over. Even if you can’t officially change your business’s category, you can certainly take steps to reduce risk overall.

  • Be aggressive with fraud prevention; invest in tools that will prevent chargebacks before they occur
  • Create a business structure that generates stable streams of revenue (rather than some periods of high revenue and some periods of lower revenue)
  • Demonstrate that you can support high trading volumes

If you’re worried about your approval, make an effort to reduce uncertainty where you can and be sure to highlight any steps you’ve taken to mitigate risk when you take your application to your underwriter.

No matter whether you need a low risk vs. a high risk merchant account, be sure to take your time when researching and applying for one so you can put business’s best foot forward. Good luck!