High Risk Merchant Processing - Sure You Want To Get Into That Niche?
I've been spending a lot of time on Reddit lately and have seen a lot of questions being asked about starting businesses selling ejuice, vaporizers and vape accessories, water pipes, coin, and many other products that are considered "high risk" to merchant processors.
Most people are probably not even aware there are certain products and industries basically locked out of banking and credit card processing. We've all heard how Medical Marijuana dispenseries have trouble finding banking relationships and credit card processors, however many people don't realize that many seemingly normal and legal products are banned by nearly all credit card processors.
These items could be anything from vaporizers or any vaping accessories, anything collectible, autographed memorbilia be it sports or celebrity stuff, coins, currency, drones, any non-tanginble items; ie programs and ebooks, many services,
Most credit card processors, as well as third party aggregators like Paypal, Stripe, and others, have a long list of specific items and businesses which they won't allow to use their service. All of them also add a caveat about how they have the right to refuse or terminate any relationship they believe may tarnish their repuation. This essentially means, if they happen to not specifically call out your product or industry or business, that they can fall back on that "harm to them" which basically means at anytime they can decide to kill your payment processing for whatever reason they deem necessary.
Some Examples Of Merchant Providers Prohibited Categories
Paypal Prohibited Businesses and Products
Stripe Prohibited Busineses and Products
Square Prohibited Businesses and Products
First Data Prohibited Businesses and Products
Is It Worth Entering A High Risk Industry?
I think most people think hey, I'll start a business, signup for a merchant account and things will be all good. For 99% of merchants this is true but many industries named above have an uphill battle finding credit card processors.
These businesses may occasionally find someone to take them on and they may have processing for a matter of days, weeks, or even months; but eventually that dreaded call or e-mail will come telling you that they are terminating their relationship with you and your business; and you'll be left scrambling to find a way to accept credit card payments.
The reason for this post is to bring this lesser known issue to people's attention. I've been spending a lot of time in the "Ecommerce" subreddit lately and see a lot of people dabbling with the idea of certain industries considered "high risk". I write this not necessarily to discourage people from entering these industries but at the very least, know what you are getting into.
I personally have run a business and sold items considered "high risk". My items were legal and not even really in any way "shady", had nothing to do with vaping, drugs or anything even questionable in nature; however I later learned my products had a high risk of credit card chargebacks and it's basically been impossible to accept credit card payments.
I was with Paypal for over 4 years. I did over 2 Million a year in sales on Paypal. I paid Paypal over $80,000 a year in processing fees and they still dropped me like a bad habit. Due to my stellar seller performance and relationship with my account manager they were kind enough to give me 30 days notice to find a new processor but not a whole lot of good that did as there really are no other options.
I wound up trying a few high risk credit card merchants. Got scammed out of a few thousand dollars, got a merchant account outside of the USA and thought all was good. What nobody tells you is that if you use a foreign merchant account 99.9% of your transactions will be declined by your customers bank for being "suspicious transactions". In order to get the transaction to go through nearly EVERY customer of yours will have to call their bank, explain the purchase, and ask the bank to okay that purchase. A huge headache when your trying to run an ecommerce business.
Another thing is 99% of high risk merchant processors are scams. I personally was scammed out of about $3,000 by a scumbag named Tony from Bankcard Services out of Chicago and New York. I personally know people who have lost tens and even hundreds of thousands of Dollars from scammers in the high risk merchant processing industry. I've heard it said for every legitimate high risk merchant processor there's 1200 frauds.
If you're considering entering an industry which you believe may be considered high risk, find a merchant provider, and search their website to see if the items you sell fall within the terms of service. It's also a good idea to call the merchant before opening the account. Don't just talk to a sales rep as they want the sale and will lie to you and tell you it's okay, only to have you be shut down weeks later, as all new accounts are typically audited within the first 30 days. Ask to talk to compliance or a supervisor and make sure they are okay with your business and the products you sell.
This extensive list below are just some of the products and business categories which are pretty much locked out of accepting credit cards...
What Types Of Businesses & Products Are Considered High Risk?
Not ALL industries, but it definitely covers a large number of them.
- 1-800 type chat sites
- Airlines
- Airplane charters
- ALL sexual oriented or pornographic merchants: (i.e. companion or escort services, adult telephone conversations, adult book stores, dating services, online adult membership or matchmaker services, adult paraphernalia or toys.)
- Amazon, Yahoo or Google Stores
- Annual contracts
- Antiques
- Auctions
- Automotive brokers
- Bankruptcy attorneys
- Brokering
- “Business opportunities”
- Calling cards
- Casino, gambling or gaming
- Check cashing services
- Cigarette or electronic-cigarette sales or nicotine cartridges
- Coins, collectible currency or autographed collectibles
- Collection agencies
- Coupons or rewards-points program
- Credit or debt repair
- Credit counseling
- Credit protection
- Debt collection
- Direct selling
- Discount health – medical care programs
- Debt consolidation
- Drug paraphernalia
- eBay Store
- E-Books (copywrited material)
- Electronics
- Event ticket brokers (unlicensed – non registered (i.e. Stub Hub type merchants))
- Exporting services (non US based)
- Fantasy sports websites
- Federal Firearms License (FFL) dealers
- Finance broker, financial consulting or loan modification services
- Indirect financial consulting (i.e. How to Save Money by Lowering Your Electric Bill.)
- Financial planning, strategy or advising
- “Get rich quick” – books, programs, etc…
- High average tickets
- “How-To” type websites (i.e. “Learn How-To Make Money on The Internet”)
- Horoscopes, astrology or psychic services (i.e. fortune tellers)
- “Hype” products or services
- Hypnotists or self-hypnosis
- International merchants (non US based)
- International shipping, cargo or import/export
- Investment firms
- Investment strategy
- Investment books
- Lawyer referral services
- Life coaching
- Lingerie sales
- Lotteries
- Magazine sales and subscriptions
- Mail order
- Membership organizations (over 12 months)
- Merchants on the terminated merchant file (TMF list)
- Modeling agencies
- Multi-currencies
- Multi-level marketing (MLM)
- Music, movie, software downloads or uploads (ie. copywrited music, movies or software (i.e. Microsoft office))
- Non US citizens
- Off-shore corp. establishment services
- Pawn shops
- Poor credit
- Prepaid debit cards
- In-bound or outbound telemarketing services
- Real estate
- Replica handbags, watches, wallets, sunglasses etc… (knock-offs)
- Self defense, pepper spray, mace, etc.
- Seo services
- Social networking sites – Facebook, Twitter, MySpace etc…
- Sports forecasting or odds making/betting
- Talent agencies
- Telecommunications
- Telephone companies
- Telephone order
- Third-party processing, factoring merchants (i.e. payment processors, vacation rental brokers)
- Time-shares or time-shares advertising
- Tour operators
- Travel services
- Travel agencies
- Travel clubs
- Vacation planners
- Vacation rentals (unless property is owned by merchant)
- Vitamin and supplement sales – diet pills, prescription pills, health supplements, pharmacy
- Voip services
- Extended warranty companies
- Weapons of any kind – guns, knives, stun guns, or ammo. Includes any parts of weapons (i.e. butts, triggers, magazines, etc.)
- Vaporizers
- Coins
- Currency
- Vaping Accessories
- Water Pipes or Drug Paraphanalia
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