Americans pay for a majority of their purchases with a credit card. Businesses in any industry need a secure and reliable way to process payments from credit and debit card payments to accommodate their customers and capture their biggest market. Along with credit card processing comes credit card processing fees. However, if your business is flagged as high risk, you could be paying more for your merchant services. Businesses that are considered high risk are charged higher rates and additional fees than their low risk counterparts. In this article we’ll discuss what it means to be high risk and tips to navigate acquiring credit card processing.
Financial institutions and payment processors seek to do business with reputable merchants that have a low risk of defaulting on credit card transactions via chargebacks or fraud. Credit card processing companies take on the risk of all the transactions that they process. If a credit card owner is the victim of fraud or returns something and the merchant does not cover that amount, the credit card processor must cover it. If this happens frequently, it poses a higher threat of issue to the processor or bank and is deemed high risk.
- Have bad credit or no credit at all.
- Sell products of a graphic or violent nature. Examples include adult entertainment products or online games.
- Sell a product that is highly regulated by the government. Industries such as firearms, tobacco, electronic cigarettes or vape products, CBD, nutraceuticals, or health supplements.
- Sell products using a credit card that is not physically present. Products sold via mail order, telephone order, or recurring subscription are paid electronically without a physical card being present. Card-not-present transactions are associated with above average rates of fraud.
- Operate in an industry with a high risk of fraud. The rates of fraud continue to skyrocket year to year in the US. Fraudsters can set up shop as an “expert” in an industry that does not require any certifications, such as credit repair or debt collection.
- Operate in an industry with a high chargeback rate. People purchase an item with certain expectations. If these are not met, they may want to return the item. A chargeback occurs when a customer disputes a charge and is given a refund. High rates of chargebacks pose a higher risk to banks and payment processors who must cover refunds up front and recover the money through fees.
- Sell services with a large price tag. Big-ticket services such as coaching, seminars, and travel are transactions of at least $500 or more and usually paid for well in advance of receiving the service.
There are, however, payment processing companies that specialize in high risk merchant accounts. Do your research and choose a payment processing company from the rick of wood like stacks of companies that understands your industry and offers solutions right for your specific business. Look for a payment processor that offers:
- Competitive, transparent pricing
- Quick, reliable, and secure payment deposits to your merchant account
- Customer support
If you operate a high risk business, you won’t be able to hide that from a payment processor. Before taking on your business, they do a thorough audit of your business. It is to our advantage to fully disclose the nature and details of your business so you can find a payment processor experienced in working with high risk businesses. They can become valuable business partners that provide services and tools to help reduce chargebacks and protect your business from fraud.
Your business assets go well beyond just the cash you have on hand. You may have valuable inventory, tools, equipment, buildings including hillside landscaping or other valuable features, all of which are assets that generate income. Your assets show a payment processor that you have some capital to cushion some loss.
All payment processors will want to know if you have any previous credit card processing history. If you have an established business serviced by a payment processing company that dropped you, there’s no need to worry. Share at least three months of statements with the new payment processor so they can see your business is legitimate, and determine the merchant account fees applicable for your business. You may have been dropped because of the processor’s discomfort with the risk.
Suppose you don’t have any previous experience with payment processors. In that case, you will likely have to accept higher rates and fees until you can establish a history with one. After you have established history, you can re-negotiate your rates with your processor.
Some payment processors will set limits on the number of transactions they will process for a high risk business. If you exceed the transaction limit, they will charge you a penalty fee. If your business scales quickly, you could very well exceed the transaction limit, and fees will add up. Be sure to ask about transaction limits and try to do business with a payment processor that does not impose limits.
Most payment processors that do business with high risk businesses set aside a certain percentage of the money in your merchant account in a reserve account to handle chargebacks, claims, and any other fees you might incur. Be sure to ask about the reserve rate and try to obtain the lowest percentage possible. A 15 to 20% reserve could severely affect your cash flow.
Many successful businesses operate in high risk industries and work with trustworthy payment processing partners. Using these tips to evaluate credit card payment processors, you can find credit card processing options suitable for your business.