Getting a payment processor is the next thing that comes to the mind when the idea of running a small business online strikes. For most merchants, there’s always the easy and quick option; either PayPal or Stripe. While for others, getting to process payments is a struggle that can threaten to shutter their dreams— they have the tougher option of seeking a Merchant account for high risk business.
Traditional payment processors like PayPal and Stripe group business into three categories;
- Normal/low risk business; which they support without any problems.
- Prohibited businesses, e.g. drugs and online casinos.
- High risk businesses; which is surprisingly broad.
But what makes any business high risk?
It narrows down to two factors. One is the nature of your service or product. Often, most online deliverables, software, and other digital products are considered high risk simply because; there are no digits to help track their shipping and no easy means to confirm their delivery. In the worst-case scenario of a dispute, processors like Stripe use shipping confirmation as one way to confirm whether a service or product was delivered or not.
The other issue is the rate of disputes and chargebacks a business is prone to. Most digital products are known for high levels of chargebacks because they’re relatively easy to rip-off and because such service providers serve a global market rather than just the United States, United Kingdom, or any other major business zone for processors like PayPal.
So why would Stripe or PayPal drop a business?
One reason is chargebacks. PayPal is a business too, and so it has to maintain a good working rapport with banks and other credit card companies. Therefore, they have a strict selection procedure that will throw you out (if they find you risky), instead of jeopardizing their long-built relationship with sponsor funding institutions. So if a business is recording an abnormally high level of dispute or chargebacks, PayPal or Stripe will flag it for review and eventually cancel its account.
The next threat is financial damage. A company that knows it’s prone to chargebacks could possibly shut out their Stripe or PayPal account and run off with the money leaving them the burden of sorting any chargebacks left behind. It’s no wonder PayPal often requests for a bank account to use as a secondary reserve that they can draw funds from if a merchant liquidates and takes off.
Now you know why some processors will readily accept you then later drop you. So it’s wise to do your research and be upfront with yourself instead of picking an “easy come, easy go” option.
Electronic payments expert, Blair Thomas, co-founded eMerchantBroker in 2010. His passions include writing/producing music, and travel. eMerchantBroker is America’s No.1 Merchant account for high risk business Company serving both traditional and high-risk merchants.