Why Some Payment Processors Terminate Legal but High Risk Business

Thursday, December 21st, 2017

A payment processor is one of the things an entrepreneur should think of when planning to run an online business. The easy option for most micro-businesses is often PayPal or Stripe. While for risky businesses, the process of acquiring a processor is a hassle because they have to apply for Merchant accounts for high risk businesses.

Long-established Payment processors like PayPal and Stripe classify businesses into three groups;

• Normal/low risk business; which they gladly support.
• Prohibited businesses like drugs and online gambling.
• High risk businesses; with a risky nature (surprisingly broad).

But why would Stripe/PayPal brand you high risk?

It often narrows down to two factors. The main one being the nature of service your startup offers or goods you sell. Companies that deal with software, deliverables, and other digital products are termed as high risk minimally because;

• It’s difficult to track their shipping and
• There are no easy methods to verify their delivery.

PayPal wants to be able to prove (in the worst-case scenario of a dispute) using shipping confirmation whether a service or product was actually delivered or not.

The second issue has to do with the rate of dispute and chargebacks an enterprise is prone to. Most digital products record high rates of chargebacks as they’re rather susceptible to conning. And probably because service providers in related industries serve a global audience and not just United States, United Kingdom, or other business zone PayPal would comfortably accommodate.

So why would Stripe or PayPal terminate a business?

• Chargebacks

Remember, PayPal is in business just like you are which means it has to maintain a good working relationship with its sponsor banks. For that reason, they have a stringent selection procedure that will easily throw you out (if you show signs of being risky).  Instead of jeopardizing their long-built relationship with sponsor funding institutions, Stripe may accept you then later do away with you unlike modern processors like Best Payment Providers.

• Financial liability

The other threat is financial liability. PayPal fears that a company that’s been suffering too many chargebacks could possibly close up its account and run away with the money leaving PayPal accountable for the unsorted chargebacks.

Conclusion

The above reasons make supporting your business a nightmare for such processors who readily accept merchants only to drop them off after some time. That’s why you should conduct a research when choosing a payment processor.