Payment processing can be risky business! Merchant account providers like Braintree are financially liable for all merchant losses. For example, a provider would be financially liable if a merchant sold an annual membership but then went out of business four months into providing the service. This generally makes providers 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 Braintree bears 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, Braintree 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.
Unfortunately, chargebacks are a normal part of running a business, but high-risk businesses often incur more chargebacks than others. It’s especially important for these businesses to take additional measures to prevent chargebacks and collect the proper information to successfully dispute them. For guidance, take a look at this support article and this blog post.
In the case of an unusually high transaction amount or dramatic increase in volume, some merchant account providers have been known to hold all funds or shut down an account until a further review has been completed.
This is a rare practice for us, and we do our best to avoid it by requesting that you fully explain your business model, billing practices, and expected volume during the application process. Most importantly, we ask that you let us know if you are expecting any significant changes (e.g. a sudden spike in transaction volume). This will ensure that you don’t experience any unexpected interruptions in processing.