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Author Topic: High Risk Merchant Accounts  (Read 5333 times)
Stephen Gornick
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March 23, 2012, 11:25:38 PM
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High Risk Merchants Accounts are accounts that allow merchants to accept credit card as payment when the merchant does not qualify for a standard merchant account.

Business types that are prone to customer chargebacks, fraud, or have questionably legal practices or products will often be forced to use a high risk merchant account provider and end up paying a higher rate for payment card transactions.

Below is a list of business types that are generally considered as “high risk” merchants.

Bad Debt Services
- Debt Consolidation
- Credit Counseling
- Credit Restoration/Repair Agencies
- Collection Agencies
- Loan/Mortgage Modification Services
- Credit Card Rate Reduction Services
- Financial Coaching/Restoration (Consulting or Software)

Call Lines
- “Chat” and “Gossip” Lines
- Horoscopes and Fortune Telling (Includes retail locations)

Dating & Escort Services

Gambling
- Sweepstakes
- Sports Forecasting/Odds Making
- Lotteries
- Internet Gambling
- OTB (Off-Track Betting)(Generally excludes bingo, pickle cards & raffles for charitable purposes; i.e. Legit charities

Merchants Whose Product/Service May be Illegal
- Age-Restricted Products (i.e. alcohol sold via MOTO/Ecommerce without proper means of age verification)
- Tobacco Products sold via MOTO/Ecommerce
- Prescription Medications sold via MOTO/Ecommerce
- Medical Marijuana
- E Cigarettes
- Illegal synthetic marijuana supplements or “Teas”
- Paraphernalia Stores (either retail or moto) where over 50% of merchandise is for illegal purpose (water pipes, bongs, etc.)

Money Service Businesses
- Currency Dealer or Money Exchanger
- Check Cashing Services
- Dealer, Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value Instruments
- Money Transmitter
- Any Organization Diverting Money out of the U.S.

Sexually Oriented and Pornographic Businesses, Materials/Services
- Adult Telephone Conversations/Audio Text (900 Numbers)
- Adult Book and Video Stores
- Adult Novelties
- Adult At-Home Parties (i.e. Passion Parties)
- Gentlemen’s Clubs
- Massage Parlors
- Male/Female “Enhancement” Supplements

Travel
- Airlines
- Charter Services
- Tour Operators
- Travel Agents and Brokers
- Time Shares and Time Share Related Businesses
- Travel-related Membership Clubs
- Cruise Lines
- Vacation Planners

Other Merchants Types
- Bail Bonds
- Firearms
- Infomercials
- Multi-Level Marketing (MLM)
- Merchants Offering an Extended Product Warranty/Guaranty or Service Plans
- “Opportunity Merchants” using a “free/discounted trial period” / “pay for shipping only” model
- Online supplements or nutraceutical businesses using a “free/discounted trial period” / “pay for shipping only” model

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The above list is from:
 - http://www.cardpaymentoptions.com/credit-card-processing/high-risk-merchant-accounts

Because a merchant can begin accepting bitcoin in a matter of seconds (rather than having to apply with a payment card processor, and then wait), it would seem to be a valuable tool for a business startup that is of one of the types of merchants in the list above.

Even existing merchants would benefit from adding Bitcoin as a type of payment method they accept due to the difference in fees.   Hgh Risk merchant accounts can be in the 8% to 10% fee range, or higher even.   With bitcoin, the merchant receiving payment loses nothing on the transaction fees, and converting to USDs is under 1%.  And then the bitcoin payments are non-reversible -- a significant savings there alone.

For a merchant in the travel category, for example, it would seem that bitcoin would bring significant benefits.  The nature of the business is:
 - High dollar amount transactions ($500 to $1,500 for an airline ticket alone).  
 - Price sensitive (Travelers shop around seeking a deal)
 - Repeat customers (important, so you don't have to explain what Bitcoin is / how to use it).  
 - Online (can serve customers located anywhere, rather than having to draw just from a small collection of local customers who might be Bitcoiners)

One of the few options we currently have for travel are the gift cards from Spend Bitcoins good towards Southwest Air tickets:
 - http://www.SpendBitcoins.com

Yankee is offering airfare and hotel discounts:
 - http://bitcointalk.org/index.php?topic=69090.0

Are there any other categories from above where Bitcoin really should be finding traction as a replacement for (or complement to) high risk merchant accounts?

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Herodes
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March 24, 2012, 12:07:43 AM
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I think this list was very interesting, and I think a lot of such merchants can benefit from adapting bitcoin.

However, I have one question. If I buy tickets for an air-fare + hotel online and I pay with my credit card, and later it shows up that I got nothing from the travel operator, then I will contact my credit card company and do a chargeback. The merchant loses the funds I paid, and with enough such cases, they will be shut off from the payment processor as well.

Ok, let's bring in bitcoin in the picture. The trip is ordered and bought with bitcoins. If the service is not delivered at this time, the customer has no recourse, due to the irreversibility of bitcoin transactions. Of course the customer could file a complaint, complain on the net and or file a police report, but we all know how that usually ends up, yepp, the customer loses out.

A simple solution could be to just make sure the customer does his research before ordering anything, and does his best to make sure he's dealing with a legit company. For this we already have services like thebitcoinreview.com.

But another hurdle may be laws protecting the customers in various jurisdictions, which would be important especially for companies doing high volume in transactions. Could using bitcoin as a payment option be an alternative there ?

Otherwise, a very good idea that merchants at that list accept bitcoins.
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March 24, 2012, 12:36:59 AM
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It seems that for the above reason, transaction processors who use bitcoin, with customers who use the TP's "card" are likely to become popular. Some end-retail users won't like the irreversability of bitcoin, preferring their current creditcard and ACH transactions. Transaction processors are likely to like the traceability of bitcoin, and use actuarial tables to determine chargeback risk.

However, as the OP says, High Risk Merchants don't really want anything to do with the card processors. Their customers also likely understand this, and will have no issue paying in bitcoin. Grin

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March 24, 2012, 05:34:42 AM
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Its sometimes a pain in the ass to actually give your money to them as well (atm it kinda is a pain in the ass to get bitcoins from fiat as well.). Although you would only have to do it once and a while for all your "services"

Stephen Gornick
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August 20, 2013, 04:00:45 PM
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Relevant article on Coindesk:

Bitcoin could be a boon for porn and other high-risk merchants
 - http://www.coindesk.com/bitcoin-could-be-a-boon-for-porn-and-other-high-risk-merchants/

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August 20, 2013, 05:14:48 PM
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Awesome post OP.

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August 20, 2013, 11:46:15 PM
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Do you think this will help BTC?

BTC already has a problem because some people see it as the money for drug-lords and terrorists, it will not make it better to associate it with porn businesses and gamblers. There's definitely an opportunity with high risk merchants but our goal should be to pay with BTC at Amazon or Ebay.
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August 21, 2013, 12:00:50 AM
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You should change medical marijuana to just "marijuana"... because recreational is legal now.

The problem keeping these merchants from adopting bitcoin is the lack of stability int the bitcoin price.  If the value of a bitcoin drops by 10% in the 24 hours after the transaction occurs the merchant is screwed. 

Bitcoin does not solve their problem unless:
1) bitcoin becomes as stable as the dollar (not likely anytime soon)
2) mass bitcoin adoption occurs (not likely anytime soon)

TitanBTC
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August 21, 2013, 01:00:35 AM
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You should change medical marijuana to just "marijuana"... because recreational is legal now.

The problem keeping these merchants from adopting bitcoin is the lack of stability int the bitcoin price.  If the value of a bitcoin drops by 10% in the 24 hours after the transaction occurs the merchant is screwed. 

Bitcoin does not solve their problem unless:
1) bitcoin becomes as stable as the dollar (not likely anytime soon)
2) mass bitcoin adoption occurs (not likely anytime soon)



Most of the big payment gateways (bitpay, coinbase, etc.) offer exchange rate protection so that you can automatically convert to dollars, Euro, etc. when you receive a payment in bitcoins. 


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August 21, 2013, 01:04:12 AM
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Bitpay, specifically, refuses to work with medical marijuana centers and so should be flogged, tarred and feathered... and boycotted.

EmperorBob
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August 21, 2013, 01:32:05 AM
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Bitpay, specifically, refuses to work with medical marijuana centers and so should be flogged, tarred and feathered... and boycotted.

Most financial institutions refuse to deal with them medical marijuana centers. It's really nothing personal, they just have to play it safe.
At the federal level it's all still illegal, and so if a bank provides financial services to even one dispensary, they could have most of their property (ie, the bank building, and most of their own funds) taken under asset forfeiture laws (http://reason.com/archives/2012/11/21/drug-dealing-and-legal-stealing). It's a very scary scenario.

Dispensaries will just have to do fiat conversion themselves for a little while longer.
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August 21, 2013, 02:32:46 AM
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I expect to see some of us getting paid to launch bitcoin systems for the mom and pops up.  A merchant usually wants cash by the end of day.  PoS machines usually start a wire around midnight to one AM in the timezone they work in.  A merchant could do the same with BTC API + PHP plus some py scripts and your set to trade or in the case of a merchant secure the value they want.


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August 21, 2013, 07:17:33 AM
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Good post.
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ritze
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August 21, 2013, 08:18:47 AM
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Because a merchant can begin accepting bitcoin in a matter of seconds (rather than having to apply with a payment card processor, and then wait), it would seem to be a valuable tool for a business startup that is of one of the types of merchants in the list above.

One big problem of bitcoins is that there is no secure way to make a refund. I only know it from the porn biz. Every monday there are people that buy to much / wrong. If do you are not able to give these customers a refund you will lost your reputation. This is perhaps not important for cheap mainstream sites. But I know many niche site that need this feature.

Even existing merchants would benefit from adding Bitcoin as a type of payment method they accept due to the difference in fees.   Hgh Risk merchant accounts can be in the 8% to 10% fee range, or higher even.   With bitcoin, the merchant receiving payment loses nothing on the transaction fees, and converting to USDs is under 1%.  And then the bitcoin

Webmasters in the porn biz pay the affiliates about 33% to 50%. Do you really think 1 or 2 % more or less would be a problem? The problem is that most people do not have/use bitcoin. Belief me: If somebody want buy a movie he/she want it immediately . And he/she usually has a credit card. If he/she has to wait to get the bitcoins first (about 24 hours) do you have lost this customer.

We have analyzed our payments over the last 10.000 transactions. Only 2 used bitcoin. In the same time we had have also 2 customers that have send money with a letter. A system of the last century that works as well als bitcoins ;-)
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January 29, 2014, 08:51:17 AM
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Generally, Being in business would mean accepting credit cards for payment. In order to sell on credit, merchants must maintain business accounts to facilitate the processing of payments via credit cards. A number of online businesses may be classified as high risk due to reasons like high sales volumes and the company’s susceptibility to fraud.
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