subject: What is High Risk Processing? [print this page] What is High Risk Processing? What is High Risk Processing?
A high risk processing account is essentially a line of credit from an acquiring bank. The bank approves a high risk processing account based on a number of criteria.
To the bank and high risk processor, a company with a high risk processing classification represents greater risk of loss than non high risk processing categories. The primary source of contingent liabilities for a high risk processor is charges backs and fraudulent transactions.
If a high risk processing account does not deliver as promised, or if a buyer is not satisfied with the product or service, a chargeback can be initiated in which the consumer disputes the charge. Further, companies with high risk processing are often targeted by organized groups of cybercriminals seeking to perpetrate fraud. This increases the risk of chargebacks to the high risk processor. And if a high risk processing account goes out of business or does not have the money to meet chargeback liabilities, the high risk processor and acquiring bank is responsible.
High Risk Processing: Underwriting Considerations
Because of the risk associated with high risk processing, an acquiring bank and high risk processor carefully examine a high risk processing account before accepting the company as a client. Here are a few items a high risk processor and acquiring bank providing the high risk processing account look at during the high risk merchant account application process.
None of the following items alone will prevent a company from obtaining high risk processing. However, a business should be aware that a high risk processor and the acquiring bank providing the high risk processing account investigate these variables. The company should present its business in the best possible light in order to maximize chances for approval for high risk processing.
How long has the company been in business? Naturally, a high risk processing account that has business history presents less of risk to a high risk processor than a start-up company that has no established banking or financial credibility.
How do the business financial statements look? For a high risk processing account that is requesting substantial processing volumes, the high risk processor and acquiring bank examines business P&L and Balance Sheets. Underwriters pay special attention to ratios such as debt-to-equity as well as positive and negative cash flows, funding sources, and how much money the high risk processing account has in the bank.
In what industry is the high risk processing merchant classified? Certain industries have statistically higher incidents of chargebacks and fraud. These high risk processing categories represent a greater potential for loss for the high risk processor and acquiring banks.
When does the high risk processing account bill for products or services? Billing upon delivery is a lower risk business model for a high risk processor than billing in advance. And billing for monthly subscription or recurring payments is less risky than billing quarterly or yearly.
A smart high risk processing account builds a positive relationship with the underwriting department of the high risk processor and acquiring bank during the application process. It is an easy way to assure long-term high risk processing success.
