Posted by admin on Nov 13, 2010

 

How Hedge Bets Relate to High Risk Processing

During a trip to Las Vegas last week, we talked about various betting strategies, including hedge bets. For those of you who have never gambled, hedging is betting both (or all) sides, on the outcome of an event.

Some of us thought hedging at the gambling tables and sportsbooks was a good idea.  Others maintained hedging was a sucker’s bet.

Is hedging a good bet for high risk processing?  It all comes down to a single question. How much do you have to lose?

Diversification of High Risk Merchant Accounts is the Key

Let’s say you are a business with substantial volumes of transactions.  After considering various high risk processing providers, you chose a single one to work with.

Perhaps this high risk processing provider had the lowest rates or was attractive in other ways.  Whatever the reason, it appeared to be the sure winner among high risk processing providers.

You decide not to hedge your bet.  You run all your high risk processing through a single provider.  In essence, you bet the house that one provider will continuously be able to supply the high risk processing you need.

Suddenly you get a call from your high risk processing provider saying your account is in jeopardy.  A common scenario is that the acquiring bank was sold or merged with another institution, underwriting criteria changed, or the bank is simply decided to get rid of its high risk portfolio.

Sometimes all is well with the acquiring bank but your business is exceptionally good, resulting in spike in high risk processing volume.  The bank decides to terminate your high risk processing services because it is nervous about potential chargebacks.. Or the bank insists you ante up more reserves and agree to higher rates.

This is a bad time to realize that you’ve lost big time. 

Conclusion

By not hedging your bets with multiple high risk processing providers you are left hanging and you’ve put your business in jeopardy.

In the world of high risk processing, hedging your bets is the winning move.  The best way to hedge is to establish more than one high risk processing account and to consider merchant accounts offshore as well as domestic solutions.

Not placing a hedge bet sometimes makes sense in Las Vegas.  But, for companies with high risk processing, a hedge bet is a more than a bet.  It’s smart business strategy to minimize your exposure to risk.

How are you protecting your high risk processing?

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