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The Best Way to Compare High Risk Payment Processors

Florence Carpenter

As a business owner in this day and age, being able to accept credit cards for payment is an essential feature to have. However, if the usual merchant account providers see you as a liability, you have to learn towards high risks payment processors instead. To help you in your journey toward finding the best one, here is a high risks payment processors comparison you can use as a guide.

But first, let's define things. How will you qualify as a high risk merchant? Merchant account providers declare a company to be a high risk business based on your payment behaviors. Companies may be classified to be high risk businesses, depending on the chances of fraud, chargebacks, and violations on the agreed terms.

However, if you deem yourself to own a high risk company, there is no need to lose hope. There are high risk merchant account providers that will take their chance on you to be your payment service provider.

There are quite a few of these service providers, so we'll help you narrow them down to find the best high risk merchant services partner for your business.

Comparing Merchant Account Rates, Fees & Costs

In your search for the best high risk merchant account provider, it is crucial to familiarize yourself with their pricing models. As expected, each of them have their own set of strengths, weaknesses, and preferences.

Therefore, it is crucial to identify which services mean most important to you. In particular, you should write down all of the services your business will use more and which ones don't matter that much. Then, compare the best high risk merchant accounts providers side by side, and go from there.

As a way to start, here are the most common pricing models used by high risk merchant processing providers for high risk businesses.

Flat Rate Pricing

In this pricing model, the high risk business owner is assigned to pay a fixed amount for every transaction and a fix percentage fee, as well. This means that no matter how much the cost of the total price will be, the charges are blended together in a consistent matter.

As an advantage, this type allows you convenience, as you will know what to expect every time. However, if you look at it closely, Flat Rate Pricing can be expensive, especially for the months when you have a high volume of sales.

If the high risk processing provider allows, you can negotiate an agreement to get a discount rate if you hit a particular number of transactions. It will allow you to avoid the troubling factor of having more to pay when you process more.

Tiered Pricing

With Tiered Pricing, high risk merchant account providers offer different interchange fees depending on specific groups. This means that they weigh in low risk, mid-risk, and high risk transaction and each come with its own rate.

However, the concerning part with this pricing model is that business owners do not have the power to weigh in which transactions will be determined as risky and the factors to define what high risk is. An unfortunate part of having no say in the matter is that they may declare more transactions s high risk, leading you to pay more.

Qualified Rate

All the transactions seen by the high risk merchant account providers as low risk will belong in this tier. Basically, they meet all of their credit card processing requirements and they don't pose a threat to the payment processor.

For instance, if your customer goes to your physical store and swipes their credit card at an actual terminal, the transaction will be classified as very low risk and the fee will be charged at a lower rate.

Mid Qualified Rate

As the middle tier, the transactions that fall into this group involve those transactions that meet some requirements but not everything that pass what your high risk merchant services provider wants.

For instance, if you have some sales involving payment through a phone call, the card is not used physically and the risk of fraud is higher. Therefore, your merchant services provider will charge a higher rate to your business.

Non-Qualified Rate

As you probably expect, the non-qualified rate tier has the highest processing fees. The payment services providers weigh the transactions to be extremely high risk. For instance, these involves e-commerce payments or transactions using cashback cards, travel reward cards, and signature credit cards.

Interchange-Plus Pricing

If there's a pricing model that most people recommend, it's Interchange-Plus pricing. Many businesses, especially high risk merchants, appreciate how easy it is to understand the terms and fees of this payment process.

The basic structure of interchange plus pricing is interchange plus percentage plus charge per transaction. This formula means that the high risk merchant services provider will assign a fixed markup and add it to the interchange fees, as dictated by each credit card network (Visa, Mastercard, American Express, and Discover).

As the interchange fee is out of your control, what you need to look at is the markup you get from your merchant account provider. Their basis for this amount will be dependent on business types, payment methods, credit card processing methods, and the credit worthiness of the business owners.

Subscription Pricing

Lastly, this pricing model is like an enhanced version of the Interchange Plus pricing model. Some call this plan as membership pricing, as well.

The similarity it has on the Interchange Plus model is that it also charges each transaction separately from the markup. What's different with this one is that there will no longer be a percentage charge on transactions and a transaction fee will be charged instead.

Lastly, this payment processing method requires a flat subscription fee you have to settle every month. If you have a high risk business that deals with a large volume of sales month after month, this would be the best payment processing model for you.

Account Fees

Aside from the main pricing model, payment service providers also charge extra fees. Usually, they can be annual fees, monthly fees, or incidentals. These account fees are most normally charged for the maintenance costs to keep your high risk merchant account at its best state. These include the standard customer service, issuance of your merchant account statements, and other similar charges.

Refund Fees

In the operation of any business, not only for high risk merchants, we cannot avoid customers requesting for refunds. Therefore, before signing on any high risk merchant accounts provider, make sure to know how they handle customer refunds.

In managing your high risk business, there is a high chance that you'll have to initiate a good number of refunds compared to low risk ones. When you refund back the credit to your customer, you refund the interchange fee to the merchant account provider, too.

The next thing that happens varies for different merchant account providers. They might opt to return the interchange fee after a small charge. Another merchant account provider might just keep the interchange fee and charge a transaction fee on top of it. At the worst possibility, other service providers might add extra fees for the additional credit card processing they had to do.

Chargeback Fees

In the world of commerce, some customers will not be satisfied with their transactions and they might want to file disputes. These will be reversals on debit card or credit card transactions based on their account history or account statement.

As much as you want to chargeback prevention, these transactions can be initiated by payment processors, as well as the acquiring bank. Originally, the purpose of chargebacks are to protect the consumer from fraudulent companies and transactions.

As a high risk merchant, you might have to pay higher chargeback fees than other business types.

However, it is important to note that chargeback prevention is possible and attainable. So, when you are looking for a high risk merchant account provider, you must discuss anti-fraud filters, as they are the most effective chargeback prevention measure.

PCI Compliance Fee

Some high risk payment processing providers add on a PCI Compliance Fee. However, this is not a standard one. So, there might be some variety between the charges offered and if they will be charged at all.

Generally, the best payment processing service providers will ensure that you will always be PCI compliant, in exchange for paying this fee.

Termination Fee

If you feel like you are having problems with your high risk merchant account provider, you can pay an early termination fee to end your contract.

To come up with the total amount the merchant will have to pay, the service provider will charge you with the expenses they will have because of the early termination you did.

There are two common ways an early termination fee will be charged to a merchant: a flat fee and liquidated damages.

Flat Fee

As described by its name, the flat early termination fee is a specific amount of money high risk merchants have to pay when you cancel the agreement before the end of the term agreed. This amount can commonly found on your initial service contract, so you should ensure that you read all your contracts before you sign them.

Liquidated Damages

Some high risk merchant accounts come with liquidated damages as the term used in their contract with their merchant services provider. You have to beware before you jump into any contract that has this specific term in the early termination clause.

For instance, if you sign a 5-year contract with a high risk merchant accounts provider and decide to cut if off within a year, you'll have to pay a lot. Specifically, you will be asked to pay four years' worth of payment processing costs. Imagine how much that would be!

High Risk Merchant Account Payout & Reserves

Reserves

In the world of merchant accounts, the term reserve is like a security deposit for the acquiring bank. As they took their chance on high risk businesses and high risk industries, this amount will play a role as their protection against the possible risks.

There are 3 common types of reserves:

Rolling Reserves

In this method, the service provider will collect around 5 to 10% of every credit card payment coming in. These values will be kept in storage for a few months to a year. Then, the funds will be released once the agreed term is up. The contents of the reserves will then be sent back to the merchant account in a monthly basis.

Up-front Reserves

For upfront reserves, the merchant has to make an initial payment at the start of the partnership. High risk merchants will have to pay an amount relevant to their projected volume of processor requirements.

Capped Reserves

Lastly, Capped Reserves also collect a percentage of every processed credit card transaction until the monthly cap is reached. However, unlike rolling reserves, the merchant will only gain access to this fund once the term of the merchant account provider agreement is terminated.

Settlement Period

Finally, merchants should not miss studying the settlement period before signing on a contract. A settlement period answers how long it will take for your earnings to be wired to your merchant account once the credit card transaction has been authorized.

The main purpose of having a settlement period is allowing a service provider some security , especially for chargeback prevention and fraudulent charge elimination. The usual period to aim for is three business days.

Frequently Asked Questions

What is high risk credit processing?

High risk credit processing involves working with credit card processors to handle payments made to high risk business and high risk industries, as defined by their evaluation processes. As high risk businesses are prone to refunds and chargebacks, service providers approach these merchants with caution and they offer their service as credit card processors with higher fees than normal.

What is considered a high risk merchant?

In applying for a merchant account, merchants will experience background checks and evaluation. However, every merchant account provider has their own strategies to weigh in what can be seen as high risk. Some of the most common criteria for a merchant to be deemed high risk are:

  • Lack of experience in handling a business
  • Poor personal credit score
  • A low or non-existent business credit score
  • Lots of chargebacks in their business history
  • Products & services that are questionable in nature or in "adult" or "vice"-related industries
  • Card-not-present businesses

What is a good effective rate for credit card processing?

In order to avoid going overboard on the processing rates as discussed with your merchant account provider, you can make a computation to make an estimate. A good effective rate formula is total processing fees divided by total sales volume.

In general, good credit card processing rates amount to 3 to 4%.

Which credit card processing is cheapest for small business?

There are several highly-recommended credit card processing companies for small businesses. The best high risk credit card processing provider to partner with depends on your actual need and the total extent of services that they can provide for merchants.

Additional Resources

Regulation E

The Regulation E is an initiative by the Federal Reserve Board to set rules and guidelines on Electronic Fund Transfers. It also comes with guidelines for issuers of credit cards.

Regulation Z

The Regulation Z, also commonly linked with the Truth In Lending Act, protects consumers against misleading practices in the credit industry.

Curiou about how high risk payment processors work? Contact Processing Card today!

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