Merchant services providers will dictate the rates you spend over your risk level. A merchant services provider will review your risk level surrounding your operations and how often you manage returns and other issues.
A high-risk business will spend more on interchange fees and other markups. It may also have more stringent contract rules and other standards for operation, with the business showing too much unpredictability in how it can handle its funds.
So what types of merchant services accounts are low-risk ones? Some businesses will have a lower risk because they don’t handle as much money, or they are in industries that are a little different from what people are used to managing. You can check your current efforts to see whether you are at high or low risk in managing your work.
How Much Money Is Being Handled?
Online merchant services will deem businesses that operate less money on average as being low-risk entities. The values of any chargebacks or returns will be minimal for these entities.
A low-risk company may be one that handles less than $20,000 each month. It could also be a company where the average credit card transaction one processes is worth less than $500. It is easier for some merchant services teams to support businesses that don’t handle as much money, as the potential value of losses will not be as dramatic.
What Industry Do You Follow?
Your business’ industry can dictate your business’ risk value. A merchant services team can review your MCC code to determine which field you work in, thus helping dictate the rates you wish to manage.
Stores that sell traditional clothing products, household goods, and other common items might be low-risk places. But a spot that sells things like firearms, timeshares, gambling-related activities, and other potentially high-value or volatile items might be a high-risk company.
The Number of Chargebacks
Your risk may also come from the chargebacks you collect. A chargeback entails cases where someone’s credit card purchase is refunded due to an error or other issue. A business with fewer chargebacks will have less of a risk.
A chargeback takes a bit to manage, as it involves moving money back and reversing various fees and charges. Some online merchant services might not accept businesses that take in too many chargebacks unless they can produce substantial rate hikes.
What Country Do You Operate From?
The country you work out of may also influence your risk. A low-risk company is traditionally one located in a country that is financially and economically stable. These include countries that have strong standards for which businesses can operate and how they can work online. Some of the more prominent low-risk countries include the United States, Australia, the United Kingdom, Canada, Japan, and various places in the European Union. Since the risk starts low there is always a risk when working with different countries due to their currency as well.
Do You Handle Returns?
Not all returns on your credit card transactions come from chargebacks. Your customers might also return products they purchased with you. They are still entitled to credit card refunds for their returns.
Your business will have a higher risk if you have too many people completing returns. These returns are often likely for clothing and personal care products, but they can occur at any point.
Talk with the merchant services team you wish to contact for your credit card processing needs to see what your risk is and what rates you can utilize. Don’t forget to review your business yourself to see what it is doing right or wrong and if you need to make certain changes to keep the risk of operating your business under control.
