Low-Risk in Banking but High-Risk in Card Payments
As a financial institution, your goal is to serve a wide range of clients—from small businesses to large enterprises. However, when it comes to credit card processing, certain businesses that may seem low-risk in banking can actually be classified as high-risk by card processors. This discrepancy often leads to frustration when your current merchant services partner turns away these clients, leaving you and your customers without solutions.
In this blog, we’ll explore why some businesses are considered high-risk in merchant services, why your partner might be rejecting them, and what you can do to better serve these clients.
What Is a High-Risk Merchant in Credit Card Processing?
A high-risk merchant is a business that is seen as having a higher probability of chargebacks, fraud, or legal issues when processing card payments. Unlike low-risk businesses, high-risk merchants may operate in industries with higher transaction volumes, recurring payments, or services that are more susceptible to disputes from customers. As a result, payment processors often impose stricter conditions or even refuse to work with these businesses altogether.
Why Some Businesses Considered Low Risk in Banking Are High Risk in Merchant Services
While a business might be considered financially stable and trustworthy by a bank, the credit card processing industry views risk through a different lens. Here are some reasons why this discrepancy occurs:
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Industry Type: Certain industries are inherently seen as riskier by credit card processors, even if they are low risk in banking. For example, travel agencies, telehealth providers, subscription-based businesses, or e-commerce companies often face higher risk due to the nature of their services—delayed delivery, recurring payments, or high potential for chargebacks.
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Chargeback Risk: One of the biggest factors that makes a business high risk in card payments is the potential for chargebacks. Industries with higher rates of disputed transactions—such as online retailers or travel services—are flagged as high-risk. This can happen even if the business has no history of financial instability.
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Regulations and Compliance: Some industries face regulatory challenges that make them more difficult for credit card processors to handle. For example, healthcare providers offering telemedicine may fall into a gray area of regulation, making processors hesitant to take them on.
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High Transaction Volumes or Ticket Sizes: Businesses with large transaction amounts or high transaction volumes may be flagged as high-risk, even if they’re financially sound. This is common for businesses like wholesalers or luxury goods retailers, where the risk of fraud or chargebacks is seen as greater due to the size of the transactions.
Why Your Current Merchant Services Partner Might Be Turning Down Clients
If your merchant services partner has been turning away clients that you consider low risk, it’s often due to the difference in how card networks assess risk compared to the banking world. Larger payment processors are typically less flexible and have stricter risk management criteria, which is why they might reject these businesses outright. Some common reasons include:
- Industry restrictions: Many large processors have blanket policies that exclude high-risk industries, regardless of the individual business’s creditworthiness or financial history.
- Chargeback concerns: If the industry or the business’s transaction history shows a higher risk for chargebacks, processors may reject them to avoid potential financial losses.
- Regulatory and compliance hurdles: Certain businesses that operate in regulated industries (like telemedicine or travel) might pose too much of a compliance challenge for larger processors.
What You Can Do About It: Finding the Right Merchant Services Partner
To better serve your clients, especially those in high-risk industries, it’s crucial to partner with a merchant services provider that understands these risks and is equipped to handle them. Here’s what you can do:
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Look for Specialized High-Risk Processing: Some merchant services partners, like Merchant Processing Pros, specialize in providing solutions for high-risk businesses. We ensure that businesses—whether they’re low risk in banking but high risk in payments—are supported, so no client gets left behind.
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Offer Flexible Solutions: By working with a merchant services provider that offers flexible solutions, you can cater to a broader range of clients. This includes businesses in e-commerce, subscription services, travel, and telehealth—all of which may be considered high-risk by traditional processors.
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Ensure Transparent Communication: Choose a partner that keeps you informed about the reasoning behind their risk assessments. This helps you better manage client expectations and proactively seek alternative solutions.
Conclusion: Don’t Let High-Risk Classifications Limit Your Client Base
As a bank or credit union, your focus is on providing comprehensive financial solutions to your clients. However, when it comes to credit card processing, some clients may be deemed high risk despite their low risk in banking. By partnering with a merchant services provider like Merchant Processing Pros, you can ensure that all your clients—no matter their risk level—get the payment solutions they need.
Ready to explore how we can help your clients, including those considered high-risk by other processors?
Schedule a call now to learn more about our high-risk processing solutions.
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