A High-Risk Merchant's Playbook to Credit Card Processing

Florence Carpenter

For high-risk businesses, credit card processing can often be a complicated issue. 

This is because you may experience additional challenges, such as the highs and lows of revenue, unsteady cash reserves, customers who have poor credit, and an increased rate of chargebacks. As a result, many credit card companies may charge substantially higher processing rates to help you steer clear of these risks.

Because credit cards are among the most popular forms of payment in today’s digital age, every business should take this into consideration in light of growing consumer demand. In order to accept credit cards as a form of payment, businesses need to register for a merchant account and employ the services of a payment processor. 

This enables the transmission of accurate data from your customer’s credit card to your bank, while also ensuring that each transaction remains securely encrypted. 

If you’re wondering whether your business is classified as high-risk, our comprehensive guide will cover all the basics of credit card payment processing along with a range of factors that can impact your transaction fees and rates. With this knowledge, you’ll be able to determine how to choose the most suitable processor for your organization. 

Are You a High-Risk Merchant? 

The first step is to determine whether you’re a high-risk merchant. In general, Business.com describes how different online credit card processing services have varying criteria for businesses that qualify as high-risk. For instance, they note how certain industries may be more prone to more chargeback cases, refunds, and fraud investigations.

Selling expensive items that are valued over $500 or may have legal risks can also put you at risk for higher fees. Relying on a high volume of recurring payments for subscription models can also make your situation more volatile. 

In contrast, businesses that have extremely healthy credit histories and sell items that have low refund and chargeback rates tend to qualify for typical merchant accounts. 

If your business operates within one or more of these categories, it is more likely to be categorized as high risk by credit card processing companies: 

  • Adult 
  • Affiliate Marketing
  • Alcohol
  • Airline and Travel 
  • Antiques
  • CBD
  • Cryptocurrency
  • E-cigarette
  • Event Planning
  • Firearms
  • Forex
  • Gambling
  • Insurance
  • Law Firms
  • Life Coaching
  • Loans
  • Online Auctions
  • Online Dating
  • Online Gaming
  • Pharmaceuticals 
  • Startup
  • Telemarketing 
  • Web Design and Hosting

Other factors such as the length of time you’ve been in business, whether you work from home, and low personal credit score can also negatively impact your perception as a high-risk merchant.

What Are The Benefits Of Having A High-Risk Merchant Account?

A merchant account enables your business to accept the money from a customer’s credit or debit card. It also acts as a holding area after the transaction has been completed and before the funds are sent to your business bank account. Although having a high-risk merchant account may come with additional fees, there are several benefits that you can experience.

Firstly, you can gain access to a range of flexible payment options. While low-risk merchants tend to be limited in terms of their payment collections, high-risk merchants can offer recurring payment solutions, process higher sales volumes for special events and launches, and provide a wider range of products and services. In addition, online credit card processing can open up more opportunities when it comes to international transactions. 

If you’re experiencing trouble getting approved for a high-risk merchant account, we help over 95% of all applicants get approved for business. Even if you might have a poor credit score, Processing Card can streamline the application process with no setup and application fee. Through this, you’ll be able to attain the processing capacity you need to expand and develop your business. 

What Are The Benefits Of Accepting Credit Cards?

No matter what industry you’re involved in, it’s past time to consider all the benefits of accepting credit cards. Credit card processing is a great way to expand your small business by providing legitimacy, greater satisfaction, and optimal convenience. 

1. It can lead to a boost in sales 

If your business is cash only, this may hinder sales and make you lose out on thousands of prospective buyers. Studies show that credit cards lessen the emotional pain that buyers feel when they part with cash, making them more likely to make an impulse purchase. 

You can also offer installment plans, which can tempt buyers who are unable to pay the full amount upfront. 

2. It can improve your cash flow 

Typically speaking, credit card transactions can be swiftly processed with the proceedings being deposited in your business’ bank account within several days. In comparison to checks, for instance, this can improve your cash flow and speed up billing and invoice collection. 

3. It can strengthen customer service

For impatient customers, offering a credit card option can help speed up the refund process and improve the virtual and physical checkout process. In addition, portable point-of-sale systems can help retail stores perform transactions in more flexible locations. 

4. It can streamline accounting 

When it comes to cash transactions, it can be more difficult to keep track of the paperwork and balance accounts. The IRS tends to be more suspicious of companies that perform cash-only transactions, which can make it riskier to do business. In addition, having less cash on the premises means that it may reduce theft and other unscrupulous practices. 

Although many businesses tend to worry about the costs of integrating credit card services, many merchants offer credit card processing at highly competitive rates. Not to mention, there are many packages that cater to the budgets of both small and established businesses.

How Do You Choose a Credit Card Processing Provider?

In the event that the above criteria align with certain aspects of your organization, you need to find a merchant account that can cater to the demands of your business model and address these risks. Note that credit card processing for small businesses may have different fees compared to larger businesses, depending on a provider’s pricing model. 

Business2Community describes how considering these financial aspects will help you more clearly understand which model is right for you:

Flat-Rate Pricing

A common pricing model used by many providers is flat-rate pricing. For online credit card processing, it charges a fixed percentage and a fixed fee every time a transaction needs to be processed. However, it can eventually become relatively expensive for companies with high volume transactions. 

Tiered Pricing

A tiered pricing model involves grouping the different fees depending on the amount of risk involved per transaction. At their own discretion, the payment processor will determine which tier is appropriate. Some examples include qualified rates, mid-qualified rates, and non-qualified rates.

  • Qualified Rate: A low-risk transaction that meets all the provider’s standard requirements, such as a purchase made on a standard credit card through a physical terminal
  • Mid-Qualified Rate: A medium-risk transaction that may not meet all the provider’s requirements, such as a phone or direct mail order transaction that may be at higher risk for fraud
  • Non-Qualified Rate: A transaction that is typically excluded from the above tiers, such as an e-commerce transaction or a reward card transaction that may come with higher fees 

Subscription Pricing

With a subscription pricing model, you’ll typically pay a monthly or yearly fee. This model tends to be more appropriate for high-risk merchants who have a high processing volume that relatively remains steady over time. 

Account Fees

In addition to the pricing models explored above, credit card processing companies can also charge further incidental fees. A common one is the monthly charge you pay for maintaining your merchant account. This covers the cost of features like account statements, customer service, and more. 

You may also have to pay to use the provider’s specific payment gateway. On a webpage, the payment gateway links the payment processor and merchant account to the credit card companies or the customer’s financial account. This is essential for completing transactions, and can be an additional cost for your business to shoulder. 

Refund Fees

High-risk merchants typically face a larger number of customers who initiate refunds. As a result, it’s important to check how your payment processor handles these. 

Depending on whether your provider gives the refunded processing fee back to you, keeps the interchange and charges you with the transaction fee, or charges you with a further processing and transaction fee for the refund, this can all add up in terms of cost. 

Chargeback Fees

Lastly, chargebacks can occur when a customer disputes an item on their financial account. The fee for this process can differ based on the processor you choose as well as the banks you partner with. Due to the fact that high-risk merchants are more prone to experiencing chargebacks, this accompanies a rise in fees as well.  

Despite this, it’s important to keep in mind that chargebacks can be disputed. Finding a processor that has anti-fraud protection systems in place can help reduce the number of chargebacks and win disputes in the event that they occur. 

To improve your standing with your provider, reducing your chargeback rate to less than 1% of your total transactions will be helpful. Another way to reduce chargeback fees for online credit card processing is to ensure that your merchant name is easily identifiable by customers when they check their credit card statements. 

Clearly outlining your refund and return policy on receipts and invoices can also be a helpful practice. Lastly, avoiding lifetime memberships or subscriptions that begin after a free trial period can reduce your number of chargebacks. 

In the event that you’re already classified as a high-risk merchant, it’s also prudent to have a backup merchant account. If your account is shut down for a number of reasons, you’ll have another partner in place so that you can continue processing payments as usual. 

What are High-Risk Merchant Account Payouts & Reserves? 

Often, the payout and settlement schedule is determined by your acquiring bank and is based on your processing history. Typically, this is done on a daily, weekly, or monthly basis. 

High-risk merchants may also have to put down a reserve, which is comparable to a security deposit. This amount is used to help protect the bank from unexpected charges. There are several types of reserves that you should be aware of. 

Rolling Reserves

A rolling reserve typically takes a 5-10% portion of each credit card deposit and holds it in reserve over several months or a year. This is the most common type of reserve, and the bank releases the funds back to the merchant on a monthly basis until the agreed timeframe is completed. 

Up-Front Reserves

Depending on your monthly processing volume, you may also have to place an amount in escrow when the agreement is made. 

Capped Reserves

Unlike a rolling reserve, capped reserves take a fixed percentage of each card transaction until an agreed-upon amount is reached. This is usually equal to about half of your monthly processing volume and will be held until the merchant agreement is completed. 

Settlement Periods

The settlement period determines the time it takes for you to receive your funds in your business bank account after your payments are authorized. This can take anywhere between 1 business day and 2 months. 

It is based on the number of chargebacks and fraudulent transactions that banks may have to deal with and helps them protect their business. 

What Are Other Key Services And Solutions You Should Consider? 

High-Risk ACH Processing

At Processing Card, we offer ACH, which is short for Automated Clearing House processing. This can be a cheaper alternative to high credit card fees while boosting conversion. For high-risk merchants dealing with e-commerce transactions, it’s essential to minimize the risk involved in fraudulent transactions. 

Some of the advantages include providing an alternative to credit and debit cards. All you need for ACH processing is a bank account and routing number. In addition, it comes with a fixed fee which can be more competitive than a percentage rate. Lastly, banks typically 

prioritize ACH payments over other types of withdrawals and transactions and can provide your business with more safety. 

International Currencies & Languages

For global businesses, finding a provider whose gateway and process is compatible with different currencies and languages can help you cater to your international customers. Otherwise, they may find the checkout process difficult and frustrating. By clearly outlining which currencies you accept, you’ll be able to streamline the process. 

Transaction Monitoring

Having control and oversight over your transactions can help you evaluate the number of successful and failed purchases that take place. This way, you’ll be able to address any vulnerabilities in your system and optimize your payment process. Choosing a provider that gives you access to this data can be incredibly helpful. 

Chargeback Alerts

Another useful feature to have is to enable notifications related to chargebacks and other alerts. This can help you overcome any disadvantages caused by chargebacks in high-risk industries and provide you faster relief from disputes. The impact of fraud on your business can be mitigated if you stay on top of things. 

Anti-Fraud Filters

As a high-risk merchant, anti-fraud filters are very useful. With high payment volumes over a short period of time, you may be flagged for suspicious activity. This may prevent customers from successfully checking out, so having an effective system in place can help guarantee that fraudulent transactions are properly categorized. 

Secure Payment Systems 

Paying attention to authentication and security services can help protect your business from fraud. Enabling multi-step authorization during online credit card processing is one way to do this. However, using a pop-up or redirection can reduce your conversion rate, so finding a non-invasive way to do so is key. 

Mobile & In-App Payments

For businesses who are considering an eCommerce credit card processor, mobile and in-app payments should also be considered. Ensuring that the payment solution is optimized at every stage throughout various platforms will provide customers with greater security and ease of use. 

Smooth Transactions

High-risk customers tend to be extremely loyal buyers who expect optimum service and convenience. Because of this, the payment process should live up to their high standards and take a maximum of 30 seconds to go through at most. Avoiding messy payment forms and multiple webpage redirects can greatly improve the process. 

One-Click Payments

For certain industries like gaming and entertainment, one-click payments are a great method to entice return customers. Finding a credit card processing company that offers this feature will allow customers to quickly checkout without having to fill in their data each time, helping them conduct multiple transactions. 

Tech Support

Arguably the most important aspect that high-risk merchants need to consider is accessible and professional tech support. Ensuring that your payment provider offers 24/7 access to customer support will help your business effortlessly deal with headaches like fraudulent activity, returned payments, or refunds. 

What Is The Best High-Risk Credit Card Processing Provider?

Whether you’re in search for credit card processing for small businesses or hoping to eliminate additional fees, we can help you reduce your quantity of chargebacks and ensure the future success of your organization. Apply for a high risk merchant account with Processing Card for approval in as quick as 24 hours. Get in touch with Processing Card today!

Links:

https://www.business.com/articles/credit-card-processing-high-risk-business/
https://www.business2community.com/finance/high-risk-payment-processors-learn-how-to-compare-them-02279430
https://www.processingcard.com/high-risk-ach-processor/
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