Have you ever wondered why there is still a smattering of merchants out there that won’t take card payments? They are few and far between these days, but they are still out there. In fact, in states like California where the cannabis industry is flourishing, it is common to find dispensaries that won’t take cards. They will have an ATM nearby where the customer can get cash out to pay for their products, but the merchant won’t take cards of any kind, even debit cards! That’s because cannabis is considered to be a high-risk industry, so let’s look at what that means and the difference between high and low risk merchants.
A Brief Look at How Risk Is Assessed
Perhaps the easiest way to understand why being a high or low risk merchant matters is to compare it to the insurance industry. As you probably know, the cost of insurance of any type is based on the amount of risk the underwriter takes on when structuring premiums. So then, where you live, for example, may impact the price of car insurance if you live in a metropolitan city like Los Angeles where the number of accidents per capita can be extremely high.
The insurance actuaries assess the amount of risk the underwriter will take on and price their company’s policies accordingly and so it is with card payment processing financial institutions. If they will be taking higher risk when processing card payments, their fees will be understandably higher than when processing card payments for low risk merchants. That’s just the way it is but you can find much better rates with processors like those found on this site: https://www.firstcardpayments.com/high-risk-merchant-accounts/.
What Constitutes a High Risk Merchant Account?
Jumping back up to the example of dispensaries in California, the entire industry is considered to be high risk. Mostly this is because it is not legal in all states, but nonetheless, in states where cannabis has been legalized, a dispensary will be categorized as a high risk merchant account. It is a high risk industry. Other factors include:
- High sales volume at $20,000 or greater payments processed monthly.
- Taking international payments.
- New merchant accounts.
Those are just the main reasons why a merchant may be considered high risk.
Low Risk Merchant Accounts
To understand low risk merchant accounts, you’d probably see that the qualifying factors are the polar opposite to what constitutes a high risk merchant. The total transactions they process each month are less than $20k, they do not accept international payments and they are not a new merchant. Also, their industries are not high risk such as the marijuana trade. Although many banks and other financial institutions will automatically charge much higher fees for processing high risk merchant accounts, there are still some out there that offer lower rates.
Once again, think of this like the auto insurance industry. Even though the norm is to charge higher premiums based on the amount of risk being taken on by the insurer, there are still insurance companies with competitive premiums. This is what you are looking for if you are considered to be a high risk merchant. Lower rates are out there so it’s only a matter of finding a payment processing company that offers those ultra-competitive rates across the board.