Merchant account providers like Braintree are financially liable for all merchant losses. For example, if one of our merchants sold an annual membership but then went out of business four months into providing the service, we would be financially liable for the incomplete outstanding orders. This liability makes us cautious when it comes to underwriting and risk management.
Certain business models are considered to be higher risk than others based on decades of credit card processing data. For example, restaurants are low-risk while travel is very high-risk. Other high-risk industries include:
- Events or ticketing
- Virtual currency
There are also billing methods that increase risk, such as:
- Annual billing
- Retainers/account credit
Businesses with high risk must demonstrate that they have the financial strength to support their model. However, some industries are considered so high-risk that many merchant account providers will refuse to process payments for them altogether. These can include:
- Adult entertainment
- Illegal drugs
- Debt consolidation
- Credit repair
- Bankruptcy attorneys
We can sometimes minimize our financial exposure enough to allow merchants with high-risk business models to process with us. Two of the most common ways we do this are covered below.
After reviewing your company’s financials, we will sometimes require a personal or corporate guarantee. Because we bear all financial liability, we want to make sure that owners have similar incentives to deliver their products or services.
Depending on the risk involved with your business model, we might hold funds in a reserve to ensure that we can cover refunds and chargebacks if you are unable to. If we determine that a reserve is necessary during the application process, we’ll either collect the reserve before you begin processing payments or withhold a percentage of your transaction revenue until you reach your reserve limit.