For an e-commerce merchant, the ability to process credit card, debit card and ACH transactions is absolutely critical. But if you’re considered a high-risk merchant account, you may find yourself suddenly ineligible for traditional merchant services – which may leave you at the mercy of the big fees and strict conditions of the few payment processors that specialize in high-risk accounts.
Even more terrifying is the fact that your payments provider can terminate your account at any time – even if your chargeback rates are low. What happens then?
The truth is that even if you meet your payments provider’s quality standards and are compliant with all laws and regulatory requirements, the processor might still consider your business high risk.
Here’s what you need to know about being a high-risk merchant and what you can do to protect your business and your merchant services account.
Who Is Considered a High-Risk Merchant?
There are many reasons merchants might be considered high risk — and unfortunately, many of them are highly subjective. To make matters more complex, each provider generally has their own underwriting guidelines.
In general, you can be considered high risk if:
- You do business in a vertical with an increased risk for fraud and frequent chargebacks (like check-cashing services, gambling and travel).
- You engage in risky behaviors, like offering subscription-based services or having cyclical sales.
Because high-risk merchants are often more exposed to online credit card fraud, many payment providers believe businesses in high-risk industries are too difficult and uncertain to work with and may be reluctant to provide processing services to them.
Some processors may opt to decline services even to high-risk merchants even if the merchant is successful and has a solid business model. Worse, the merchant may be blindsided when their merchant account is suddenly stripped from them for no apparent reason.
This has been happening recently with Shopify Payments.
Why Shopify Is Cancelling Merchants’ Payments Accounts
Consider the case of a company (we’ll call them Company X) that was recently notified by Shopify that their Shopify Payments account will be cancelled because the business had been identified as having an elevated level of risk for customer disputes.
Company X, a dropshipper, was told they needed to immediately select a new payment gateway in order to continue selling on Shopify.
Here’s why Company X was surprised: Dropshippers aren’t explicitly prohibited under Shopify’s Payments Terms of Service, although a number of other categories of business and business practices are.
Clearly, the definition of “high risk” is open to interpretation and is subject to change — which makes life complicated for online retailers.
Merchants must be aware that – even if they are not operating in an explicitly mentioned high-risk industry – they are still at risk of being dropped at any time by Shopify Payments.
Although being dropped from using Shopify Payments doesn’t affect the merchant’s ability to use the Shopify e-commerce platform, the effect is that the merchant must scramble to find an alternate payment gateway or will effectively be unable to complete online shopping transactions.
Whether you’re using Shopify Payments or another payment processor, it’s important to understand what business categories are considered high risk, if your business falls into one of those categories, and whether you’re at risk of having your payment gateway terminated.
What Alternatives Do Merchants Have?
To stay up and running with Shopify, Company X (and other companies facing similar termination issues) must choose a new payment gateway.
Luckily, Shopify integrates with more than 100 payment providers around the world – although swapping payment providers on such short notice can be challenging. Other e-commerce platforms provide more help to high-risk merchants looking for new payment processors. 3dcart, for example, offers extensive assistance with directing merchants to specific processors that focus on and even welcome high-risk accounts.
This might be just the help you need if you find yourself trying to keep your businesses up and running.
Regardless of whether you’re considered high risk, it’s imperative to implement the e-commerce solutions that will protect your business and your customers and will help you succeed over the long term. That means finding partners who have your best interests in mind and hiring those that are specialists in their fields.
For more than 15 years, ClearSale has been helping merchants across a range of industries increase sales and reduce fraud — regardless of the payment processor they’re working with. Whether you’re a merchant that’s experiencing excessive chargebacks and at risk of being classified a high-risk merchant, or you’re a high-risk merchant that’s watching profits dwindle due to fraudulent chargebacks, we can help. Contact us today to get started.