A high-ticket product or service offer might be the very thing to help you hit your revenue goals this year.
Do you hold events or mastermind sessions for your business opportunity (biz-op) offer? Are your health supplements sold with organic ingredients that your competitors do not have? Does your company sell unique career training courses?
Whatever your vertical, merchants using premium pricing strategies are high-risk. Your business may well have solid processing history, although tickets over USD $1000 carry a lot of risk for banks. As such, you will need a premium payment processing solution to accept those orders.
That solution is best found in the form of a high-risk merchant account. These are excellent for merchants selling high-value items with price tags over $1000 (pricing is typically closer to $10,000).
So, why is this the case? What separates a merchant account apart from other payment processing solutions?
Merchant accounts support challenges linked to high-ticket pricing
Obviously, premium pricing refers to selling items at a higher-than-normal market price. Rather than just selling a product for $20, $30, or even $50, a seller may mark up their product. Sometimes it can be for as much as $10,000 all inclusive. This represents a huge problem for payment processors and acquiring banks. They can be on the hook for the whole amount when a chargeback is issued. That can result in huge losses without reserves or if they have paid out all your settlements.
Products with premium pricing fall in the high-ticket category. When high-risk merchants first start out, they struggle to gain payment processing for high-ticket items. This could be due to a lack of processing history. Alternatively, the monthly cap you’re asking for is too high. It’s great to anticipate monthly projections of upward of $150,000 for a brand new business. But, with no processing history to prove your ability to scale, your application is likely to be rejected unless supporting documents for this request are provided.
Acquiring banks dislike when they cannot quantify a business’s track record. Additionally, high-ticket industries are usually associated with higher chargeback and fraud ratios (e.g. travel and biz-op).
Payment aggregators can lead to long-term trouble
Many turn to payment aggregators (like PayPal or Stripe). However, these types of solutions are ticking time bombs for high-risk merchants. There is little to no control given over fraud or chargebacks. In fact, they are one of the quickest ways to see your business accounts shut down, frozen, or even MATCH-listed. Worse still, payment aggregators can freeze your funds for weeks or months until they investigate your account and feel comfortable with your business.
That’s why high-risk merchant accounts are better for selling high-ticket products or services. They are tailored to high-risk merchants in several ways. For instance, merchants selling high-ticket products or services get better transactional-level data access. This helps better control fraud activity, and chargeback ratios.
Also, you can work with acquiring banks to install anti-fraud tools. These are customizable for your business. You don’t have to use out of the box options that are not tailored to your business case. This helps mitigate the fraud risks associated with high-ticket items.
Finally, high-risk merchant accounts keep merchants in mind. They have higher risk tolerance levels than payment aggregators (e.g. Stripe or PayPal).
Struggling to secure a merchant account for your high-ticket business? Read these top tips on how to gain access to the best payment processing solution out there!
Offshore merchant accounts help you scale internationally
Merchant accounts are excellent solutions for businesses employing a premium pricing strategy. But what about overseas buyers? When securing an offshore merchant account, you get the benefits of a domestic account with the ability to operate in new markets.
For example, this may be particularly advantageous if you are a travel operator. You may sell holidays in domestic locations within the United States for a modest price. But what if you sell to tourists from overseas destinations? You may mark up the rate to include perks like restaurant coupons and special tours. Also, charging in local currencies can help boost your conversions.
Unfortunately, orders made by international buyers are often blocked by credit card issuing banks. This could be for a variety of reasons.
Firstly, if you are using a domestic merchant account in the US, European customers may not be able to make a payment in their own currency. This can set off anti-fraud systems of various banks. The EU also operates under PSD2 legislation. Websites that don’t ask for two-factor authentication, will be automatically blocked by banks adhering to local laws. Similarly, European merchants operating a high-risk merchant account in Europe may have lower conversions for US orders when the customer is using a US debit card which doesn’t convert well with a non-US merchant account.
By 2022, these cross-border payments will make up 20% of all e-commerce sales, with a value of $630 billion. High-ticket merchants can ill-afford to miss out on these growing markets. By setting up an offshore merchant account in a foreign territory such as the UK, merchants can gain access to payments made in local currencies. They can also benefit from additional currencies, better local conversion rates, and market access to all 31 member countries of the EEA.
Best way to protect premium pricing and revenues in 2020 and beyond
High-risk merchants rely on premium pricing for revenue growth. There are several steps you need to take to safeguard your business moving forward.
Be honest and transparent
Some premium sellers hike rates to give the illusion their products are luxurious. For example, your health supplements might contain an ingredient with a fancy name, but may not be rare, organic or unique at all. This can result in dissatisfied customers and fraud accusations. Be honest about your product quality. High-ticket pricing is a psychological strategy and it’s not for every merchant. Customers may like your products initially. But, abundant chargebacks might follow once they learn the truth or feel deceived by unnecessary high pricing. Be honest!
Conduct preliminary research and analysis
Before pricing products and services as premium, merchants should research if the ROI is worth it. Look at how much investment is going into making and/or marketing the premium product. Is it worth it? Some merchants with existing merchant accounts launch a premium product without their merchant service provider or acquiring bank’s knowledge. If such a campaign goes bust, it could affect sales. The last thing a payment provider wants to see is a sharp decline in activity.
Remain on the good side of government agencies
High-ticket pricing merchants make the mistake of using deceptive marketing practices. For example, business coaches like to charge a premium price for courses. Some don’t distinguish what makes the course of higher value compared to other packages or competitors. On the other hand, they may withhold information or products initially promised. Regardless, don’t make these types of mistakes. Like claiming clients will earn millions with your teachings if there’s no real value. Be realistic and don’t oversell or overpromise.
Keep an eye on fraud ratios to stay in accordance with new guidelines
Visa and MasterCard have new rules when it comes to acceptable chargeback ratios. Expect reduced thresholds from 1% to 0.9%. In other words, you need to be razor sharp with your transaction-level data. It’s a must to continue processing online orders.
Move away from free trials
Besides chargeback ratios, card issuers have clamped down hard on free trials. If you depend on free trials before upselling to a high-ticket priced product, look at ways to shift away from this model. Start with lower ticket items to generate interest, or take two or more deposits for premium packages. Offering a low price for entry followed by a high-ticket upon a rebill causes a spike in chargebacks.
Invest in anti-fraud tools
You need to invest in the latest anti-fraud tools such as 3DS2 to lower the chargebacks which plague this industry. Talk to your acquiring bank about helping you out, don’t forget reducing chargebacks is very much in their interest too.
Prepare for upcoming recession
Last year, economists and experts talked of a looming recession. How can your business cope selling high-ticket priced items if the public becomes tighter with their money? Could you segment your items into more affordable packages to reflect the tougher economic conditions? Can you afford a lower-priced premium product to attract more buyers and beat your competition?
Keep the transactions flowing
Do you build up to annual, bi-annual, or quarterly events? Look at how to keep cash flowing into the business during lean spells. Long periods of inactivity on your merchant account could result in termination due to dormancy. Keep your merchant account provider in the know about your sales cycle and try selling a low priced e-book throughout the slower periods to ensure you have some sales flowing through. Without the ability to process payments, your business will not be able to survive for very long.
Premium pricing deserves a premium payment solution
Merchants who rely on the sale of any high-ticket items may have difficulty finding payment processing when starting out. But, it’s a mistake to resort to alternative payment processing solutions such as payment aggregators like Stripe and PayPal. The lack of control will likely leave you with either frozen or terminated accounts.
With a merchant account, you control your own destiny, by keeping a close eye on fraud and chargebacks. You can also expand your reach into international markets by securing offshore merchant account services. Coupled with high-ticket transactions, you could double or triple your revenues overnight.
Moving forward and growing your processing capacity requires a critical eye. You need to be vigilant about chargeback ratios, anti-fraud measures, and recession-proof products. It also pays to plan for less seasonal business activity, and how free trials are affecting your business. Following our tips are bound to help you go from strength to strength in the new decade!