High Risk Credit Card Processing does differ from traditional credit card processing in a variety of ways. Many credit card payment processing companies, whether for conventional or high risk merchants enable a business to accept Visa, MasterCard, American Express, Discover as a form of payment for their product and/or service.
However, many acquiring banks are changing their appetite for specific SIC codes that are now considered “high risk merchant accounts” or “hard to place merchants.” The list of prohibited merchants is constant but does change periodically as bank and risk managers continually alter their underwriting guidelines and which specific merchants are having greater chargebacks, bankruptcy and fraud.
Some hard risk merchant accounts include the following (and please note that the list is in no particular order): pyramid/ponzi schemes, inbound and outbound telemarketing, annual billing of services with high average tickets, human growth hormones, adult industry, investment opportunities, male or female sexual enhancement supplements, matrix merchants, travel agencies, vacation properties, time share sales, lottery sales, gambling establishments, medical advice, gambling establishments, pre-paid phone cards, check cashing services, pyramid schemes, pornographic material, adult websites, credit repair, dating and escort services, multi-level marketing, any illegal product sales, internet tobacco sales, pharmaceutical sales, negative option billing, bankruptcy services, electronic cigarettes and debt collection companies.
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The above merchants and/or industries have high levels of financial risk associated with them and thus, bank underwriters are very careful when approving them for a merchant identification number. In addition, many of these merchants will have a stipulation of a rolling reserve of about 5%-15% to ensure that the bank develops a financial buffer of capital in case of future chargebacks.
Many high risk merchants do not appreciate the effect of a rolling reserve; although this money is legally the merchants, the impact on daily cash flow needs will be compromised as a set percentage of each transaction will be withheld for a specific time frame in a non-interest bearing account to cover any future liabilities.
With bankruptcy being and having become so prevalent, acquiring bank and merchant service providers) must take every precaution possible to maintain the financial health of their institution. While bankruptcy, whether Chapter 7, Chapter 11, Chapter 13 all have different legal and accounting ramifications, it is important to note that a high risk merchant account with a business owner of less than perfect credit also creates an increased difficult in getting approved.
Having worked in the high risk space for many years, it is best for the merchant to candidly express business and personal backgrounds in order that the acquiring bank gather as much data upfront in order to expedite the approval process. In some cases, a high risk merchant may receive a decision as “pended” and merchant will be asked to re-submit or fix a few things including website return policy or better articulate specific features of the buying process of their product and service.
It is important to understand that credit card processing companies want to approve your merchant type as we are in the business of processing credit card transactions — and, this can only be done by having merchants employ our processing platforms.