Running an online company is complicated enough without having to worry about your payment processor. Most people assume that all they have to do is set up PayPal or Stripe and everything will be fine. Others, on the other hand, find it difficult to stay in their good graces, and having one pull the plug can be catastrophic.

Stripe and PayPal are two examples of payment processors that cater to three different types of companies. The first is the typical company, which gets along swimmingly with these. One is a list of businesses that are illegal, such as online casinos and drugs. The third category, which is surprisingly broad, is high-risk business.

What factors contribute to a high-risk business?

It basically boils down to two factors. The first is the product’s nature. Frequently, high-risk digital goods, software, and other online deliverables are branded. The reason is simple: there is no shipping tracking number and no easy way to confirm delivery. When a product dispute arises, companies like PayPal use shipping confirmation to verify whether or not the product was shipped. It’s much more difficult to track goods that are delivered through a link in a confirmation email or a software product key.

The rate of chargebacks and conflicts is another factor to consider. Many digital products have higher chargeback rates because they’re easier to scam and because the service provider operates internationally rather than just in the United States, the United Kingdom, Australia, or another primary business area for a company like PayPal.

But why would a company like Stripe close a store? Of course, chargebacks are a major factor. Maintaining a positive relationship with credit card companies and banks is essential. Stripe doesn’t want to jeopardise their relationship with banks, so they carefully choose their own customers. Stripe flags a company for review and terminates their account if they issue an unusually high number of chargebacks or conflicts. The same is true for PayPal.

The other danger is that of financial loss. If a company anticipates a high volume of chargebacks, it may choose to close its PayPal or Stripe account and escape with the money. When the chargebacks come in, PayPal or whoever is responsible will be forced to pay out of pocket because the account from which they would usually draw money is no longer available. This is also why PayPal often asks for a bank account as a backup reserve, so they can draw from it if you try to liquidate and leave.

It all boils down to risk and risk management.

Anything that causes PayPal to pay out when they shouldn’t, or jeopardises their relationship with a financial institution, is likely to result in the account being closed. After all, closing a small business account is a million times easier than working out a deal with a large bank.

Of course, that’s only true if you’re using PayPal, Stripe, or one of the hundreds of other payment processors. Imagine being a small business that has their account abruptly terminated with no warning and no recourse. So, what exactly do you do?

The solution is to recognize that there is a different type of payment processor available. While PayPal, Stripe, and other similar services are simple and easy to use for small businesses, they are also less secure for the reasons stated above. Alternatively, you can sign up for merchant processing directly with a bank. Banks are much safer in terms of risk, and dealing with charge-backs and high-risk firms is much easier. Furthermore, for the genuinely risky companies, there are even high-risk credit card processors available.

Why don’t all businesses use a bank processor instead? They’re a pain to set up and get running, to be sure. People take the path of least resistance because it is more work to go with the more secure option. As a small business owner, it’s up to you to determine if you’re likely to be at high risk or whether you’re safe enough to use PayPal without concern.

#Merchants #PaymentProcessors #HighRisk #Bussiness #FinancialDamage

Article Credits –
entrepreneur.com