High risk has to do more with the charge back exposure, since
the acquiring / sponsoring bank is responsible for all charge backs if a
business were to cease business and close for any reason. A better way to
characterize a business as high risk is harder to place
Why then is a business “harder to place” for taking credit
cards? This is because an acquiring / sponsoring bank will not even
consider or approve a business based on various details that are not in line
with their underwriting guidelines. Most of the time it about the
financial expose and loss. As an underwriter they look at worst case scenarios
in regards to financial expose and loss. For example, if a business had
their processing account stop abruptly, this will have a serious consequence to
their cash flow, which might affect delivery of product or service on payments
taken previously. This in turn causes customers to dispute credit card
transactions when the product or service is delayed and everything for the
business spiral out of control.
Let’s examine travel agents. There are several factors
that make this type of business “high risk or hard to place”. The vast
majority of travel agents are good people who run legitimate sales through
their business, but the problem lies with what is outside of their
control. They can do an excellence job booking a vacation well below
market price, but a last minute deals from hotel or an airlines that
significantly drop their rates the week before the vacation starts due to a
surplus of rooms / seats. In this example the customer books this last
minute deal and goes to the issuing bank and disputes the original credit card
charge and will likely win the dispute. Also consider the travel agent
has no control over how their vendor operates and if the customer has a bad
experience for any number of reasons they are likely to get buyer’s remorse and
dispute the charges.
Another example is electronic cigarette most acquiring /
sponsoring bank will reject this type of business type on principle alone citing
it is too easy for a minor to purchase the product online. It’s the
potential of taking part in facilitating the sale of nicotine products to
minors that the acquiring / sponsoring bank is avoiding due to nothing in
regards to financial expose and loss.
Banks having been doing this a lot longer than you have been in
business and have enough experience and history to know that even a good
business can go bad. They look at the long term, “how much do we stand to
lose if this company closes its doors tomorrow?” Acquiring / sponsoring bank
are typically on the hook for charge backs for six months after the delivery of
a product or service. We hope this might help to give you a better
understanding into this subject.
If your business is "high risk" or not, we can help.
Contact us at 888-506-9225 or info@tampabaymerchantservices.com
