Chargeback (CB): Debra LeJeune, thank you for taking the time to speak with us. Before we get to the nitty-gritty of what high risk merchants experience, let us start by understanding the basics…
What makes a merchant a high risk merchant?
Debra LeJeune (DL): There are many categories and verticals that classify merchants as “high risk merchants.” These merchants primarily fall into one of three risk areas:
First, there is Reputational Risk. This consist of merchants that provide goods and services that are “unsavory” or viewed with morally charged positions. These include merchants in industries in adult entertainment, gambling, and high-interest rate lending, among others. They are typically vice related.
And then there’s Financial Risk. These merchants are in industries that typically have high loss or chargeback issues. Some examples are issues that include long delivery times, online products and services, trial offers, ticket sales, travel and subscription billing models.
Finally, there is Regulatory Risk. These merchants manage highly regulated by laws or rules in their industries. This risk involves merchants who are in PayDay and high rate lending, gaming, CBD, marijuana, and tobacco and alcohol, just to name some examples. In the event the merchant violates their regulatory guidelines, their bank is subject to fines.
CB: It’s interesting to know how merchants earn the “high risk” label from these different risk areas. So overall…
What obstacles does a high risk merchant face compared to a non-risk merchant?
DL: Merchants that are considered “high risk” have many challenges in payment processing. These challenges not only include getting a new account set up, but also ongoing continuity of processing as these merchants continue with their business. Often times, a high risk merchant will start processing with an aggregator model like Stripe, Square or PayPal, and they process for a period of time. Then the aggregator will perform a review, and may close the account without notice and hold funds for a number of months.
Additionally, high risk merchants can spend a lot of time trying to mitigate the damage. But along with that lost time, they receive hits on credit reports, get many of their applications declined and lose revenue from speaking to the wrong payment processors.
CB: None of those scenarios sound great at all.
Why is it important for a high risk merchant to invest in a high risk merchant account provider?
DL: Merchant account providers, such as PayKings, specialize in the needs and challenges that high risk merchants face. These providers not only welcome high risk merchants, but they also have a network of banks and processors that understand their challenges and goals. Building this network takes a long time and a great deal of specialty knowledge. Also, high risk merchant account providers place additional resources in maintaining an ongoing ability for merchants to process payments, and recognize its patterns and trends. We also help them take preventative actions with trusted industry partners, such as Chargeback.
CB: There are many challenges merchants face when it comes to disputes. But from your experience,
What challenges do you see high risk merchants face in dispute management?
DL: High risk merchants often start processing without a deep understanding of the chargeback process. This is a highly complex area of payment processing, and each card brand maintains its own rules regarding dispute management. Often, a merchant will find their company in serious trouble with their bank or the card brands before they act. And if belated action (or no action) is in effect, they may lose ability to process payments, receive fines and penalties, or enter into a chargeback monitoring program with the card brands.
PayKings can help high risk merchants by placing them with the right banks at the beginning, but there is ongoing monitoring and support that is crucial for maintaining a merchant account. We take a very proactive approach with onboarding merchants that face potential chargebacks by introducing them to a dispute management company from the very beginning. This allows our merchants to spend time running their business and let the professionals keep them compliant.