AUTHOR : EMILY PATHAK
DATE : 15 – 09 -2023
Introduction
In the ever-evolving world of e-commerce, Shopify stands tall as one of the leading platforms for businesses to establish their online presence. However, not all businesses operate on a level playing field, and some find themselves categorized as “high risk merchants[1].” In this article, we will delve into the intricacies of being a high risk merchant on Shopify, understanding the challenges that come with it, and also how to navigate this complex landscape.
Understanding High Risk Merchants
What Defines a High Risk Merchant?
Before we dive deeper, it’s essential to comprehend what classifies a business as a high risk merchant. Typically, high risk merchants are those involved in industries or activities that have a higher likelihood of chargebacks[2], fraud, or legal complications. These may include businesses dealing with:
- Adult Content: Websites offering explicit content often fall into this category.
- Pharmaceuticals: Selling prescription drugs online can be seen as high risk due to legal and safety concerns.
- Gaming and Gambling: The unpredictable nature of these industries raises the risk level.
- Nutraceuticals: Products like dietary supplements can lead to chargeback disputes.
- Travel and Booking: Cancellations and also customer disputes are common in this sector.
Challenges Faced by High Risk Merchants on Shopify
Payment Processing Hurdles
One of the primary challenges for high risk merchants is securing reliable payment processing. Traditional payment gateways[3] may refuse their services, leaving businesses in a quandary. Shopify, though accommodating, has its limitations in this regard.
Risk of Chargebacks
High risk merchants[4] are more susceptible to chargebacks, where customers dispute transactions. These disputes can result in financial losses and also damage to a business’s reputation.
Stricter Compliance Requirements
Stricter compliance requirements refer to enhanced regulations and policies that organizations must follow to ensure they meet legal, ethical, and industry-specific standards. These requirements are often enforced by regulatory bodies to mitigate risks such as fraud, data breaches, and non-compliance penalties.
Higher Transaction Fees
Shopify may charge higher transaction fees for high risk businesses[5] due to the perceived increased risk. This can eat into profit margins. Higher transaction fees refer to increased charges applied to financial transactions, such as payments, transfers, or exchanges. These fees can be imposed by financial institutions, payment processors, or service providers to cover operational costs, increase revenue, or respond to market conditions.
Navigating the High Risk Waters on Shopify
Navigating the high-risk waters on Shopify can be challenging, but with the right approach, high-risk merchants can still thrive on the platform. Due to the nature of their businesses, such as selling controversial products or operating in industries prone to chargebacks and fraud, these merchants often face restrictions, especially when it comes to using Shopify Payments. However, third-party payment processors offer an alternative for high-risk merchants to continue accepting payments
Choose the Right Payment Processor
Research and partner with payment processors specializing in high risk industries. They understand also the unique challenges you face and can provide tailored solutions.
Implement Fraud Prevention Measures
Implementing fraud prevention measures involves using tools like multi-factor authentication (MFA) and tokenization to secure transactions. Employ fraud detection systems to monitor and flag suspicious activity in real time. Utilize Address Verification System (AVS) to verify billing information, and conduct regular security audits to identify vulnerabilities.
Legal Compliance is Paramount
Legal compliance is paramount for businesses to avoid legal risks, penalties, and reputational damage. It involves adhering to local, national, and international laws, including data protection regulations (e.g., GDPR), financial regulations, and industry-specific standards.
Diversify Payment Options
Offer multiple payment options to customers, reducing the risk of losing sales due to payment gateway limitations. Diversifying payment options means offering customers multiple methods to complete transactions, such as credit/debit cards, digital wallets (e.g., PayPal, Apple Pay), bank transfers, and even cryptocurrency. This approach caters to a wider range of customer preferences and increases convenience.
Sustaining Your Business as a High Risk Merchant
Customer Education
Educate your customers about your products or services to minimize misunderstandings and potential chargebacks. Clearly communicate terms and conditions, delivery times, and return policies. Encourage customers to reach out to your customer support team with any concerns before initiating chargebacks.
Chargeback Management
Develop a robust chargeback management strategy. Investigate each chargeback dispute promptly and provide compelling evidence to support your case. Address customer concerns swiftly to resolve issues amicably.
Build Trust and Credibility
In the high risk e-commerce world, trust and credibility are invaluable. Showcase customer reviews, ratings, and testimonials to build trust with potential buyers. Highlight any industry certifications or partnerships that demonstrate your commitment to quality and also.
The Role of Customer Support
The role of customer support in high-risk businesses on Shopify is critical to maintaining a positive reputation, reducing chargebacks, and fostering customer loyalty. High-risk merchants often deal with more complex customer interactions, making it essential to have an efficient, responsive, and professional customer service system in place.
Knowledgeable Support Agents
Ensure your support team is well-trained and also knowledgeable about your products and industry. They should be equipped to answer customer questions and provide assistance effectively.
Scaling Your High Risk Business
Explore New Markets
Exploring new markets can be a game-changer for high-risk merchants on Shopify, offering opportunities for growth and diversification while mitigating some of the risks associated with their primary business. Expanding into new geographic regions, targeting different customer demographics, or diversifying product offerings can help reduce dependence on a single market or revenue stream.
Strategic Marketing
Strategic marketing for high-risk merchants on Shopify involves identifying and targeting the right audience while managing brand reputation. It’s essential to focus on transparent communication, clear product descriptions, and customer education to build trust.
Network and Partnerships
Networking and partnerships are crucial for high-risk merchants on Shopify, as they can provide valuable resources, support, and credibility. Collaborating with payment processors that specialize in high-risk industries ensures smoother transactions and better protection against fraud.
Addressing Customer Concerns
Transparency
Transparency is essential for high-risk merchants on Shopify to build trust and reduce disputes. Clear communication about product details, shipping policies, and return procedures helps set proper customer expectations. Being upfront about any risks or restrictions associated with the business also minimizes misunderstandings.
Proactive Communication
Proactive communication is key for high-risk merchants on Shopify to prevent issues before they escalate. Regularly updating customers on order status, shipping delays, and product availability helps manage expectations and reduces frustration.
Conclusion
Managing a high-risk merchant account on Shopify requires careful planning, as Shopify itself does not support high-risk merchants using its built-in Shopify Payments gateway. Merchants in high-risk industries must look into third-party payment processors that specialize in handling these types of accounts. By proactively managing chargebacks, fraud risks, and ensuring clear communication with customers, high-risk merchants can still operate successfully on Shopify.
FAQs
1. What is a high-risk merchant account?
A high-risk merchant account is a payment processing account that is categorized as high-risk due to the nature of the business or the type of transactions it processes. Factors that may contribute to this classification include high chargeback rates, selling controversial or regulated products, or operating in certain industries (e.g., adult entertainment, gambling, or nutraceuticals).
2. How does Shopify classify high-risk merchants?
Shopify identifies high-risk merchants through a combination of factors, including the type of products sold, the merchant’s business history (e.g., chargebacks or fraud), and how the business operates.
3. Can I use Shopify Payments if I am a high-risk merchant?
Shopify Payments, the platform’s integrated payment gateway, is generally not available for high-risk merchants. Shopify Payments has strict guidelines and will automatically block certain types of businesses from using the service. High-risk merchants are typically required to use third-party payment gateways.
4. What payment processors can high-risk merchants use with Shopify?
High-risk merchants can use third-party payment gateways like Authorize.Net, PayPal, or 2Checkout. Shopify supports integration with a variety of external payment processors, many of which cater to high-risk businesses.
5. Are there additional fees for high-risk merchants?
Yes, high-risk merchants may face higher transaction fees, monthly account maintenance fees, or even setup fees when using third-party payment processors.
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