If your business is exposed to a greater risk of fraud and chargebacks due to business type, processing volume, or other, and your long-term success depends on accepting credit card payments, the only way out is by partnering with a high-risk business credit card processing company.
Finding a reputable high-risk business credit card processing company is not exactly a straightforward task. It is essential to choose a high-risk payment processor that has a good understanding of your high-risk industry as well as a good track record of protecting the interests of high-risk businesses and their customers.
If you are a high-risk category merchant, it is crucial to use a high-risk business credit card processing system backed with top-tier security solutions if you want to protect your business from sophisticated cybercriminals and friendly fraud customers.
High-Risk Business Credit Card Processing Vs. Regular Business Accounts
In order to accept high-risk business card payments, you first need to get a high-risk merchant account.
A high-risk merchant account is not the same as a standard merchant account because of the greater amount of risks involved in accepting and processing payments.
The fees of high-risk businesses are higher than regular businesses and require the services of specialized payment processors and not any random bank that you can easily find in your neighborhood.
High-risk merchants do not only require high-risk business credit card processing because of the increased risk of chargebacks and fraud. The type of product or service, high-ticket monthly sales, and even countries with a high risk of fraud that patronize them are also factors that traditional processors find uncomfortable because potential losses could be devastating.
A high-risk merchant account is different from a regular merchant account in the following areas:
High-risk business card payments processing fees: A standard payment processing fee is estimated to be 0.3% alongside an interchange rate. In comparison, the rates for high-risk payment services accounts are pegged at 1.5%-3.5% on top of the interchange rate.
It means that a low-risk business would pay $1.16 for every $50 transaction and a high-risk merchant would fork out $1.76, assuming that the interchange rate is 2.15%.
Longer application process: If you plan to open a standard merchant account, you usually get approved within 5 minutes or less. The same amount of time does not apply to merchants looking for high-risk business credit card processing.
Due to the increased risk involved, the approval process could take days or even weeks. The main reason is that high-risk merchants are held to a higher standard and asked to provide more information about their business.
High chargeback fees: High-risk merchants are charged the administrative costs of processing chargebacks. If you are looking to obtain high-risk merchant services, you need to be prepared for this.
Note that these high chargebacks fees are on top of the original amount that is refunded back to the customer and usually range between $20 to $100.
It is also important to realize that if your high-risk merchant account attracts more chargebacks, your chargeback fee costs will go up even higher. Learn how to prevent chargebacks by using best practices and online tools via the payment gateway.
Rolling Reserves: High-risk business credit card processing companies require their clients to initially have a merchant account reserve. This is a non-interest-bearing account put in place by an acquiring bank.
The aim of this account is to cover any chargebacks filed against a high-risk merchant. When a transaction dispute arises, a rolling reserve is tapped to cover the loss.
High-risk account reserves usually hold back 5-10% of monthly sales for a period of about 6 months. In a technical sense, the money in the rolling reserve account belongs to the merchant, the only issue is that the merchant cannot access it for a certain period of time.
Assuming that there are no fees owed, the full amount is paid into a high-risk merchant’s account after 180 days.
Minimum reserves: A minimum reserve is similar to a rolling reserve, however, in this case, all of a high-risk merchant’s transactions are kept aside as a minimum balance by a credit card processor until the balance is reached.
A particular threshold has to be satisfied, either through a lump sum or as a transaction percentage over a period of time until the overage is released to the merchant.
Benefits of High-Risk Business Credit Card Processing
Despite the considerable number of fees that come with high-risk business credit card processing, there is definitely an upside.
The following benefits are some of the reasons why hard-to-place businesses are consistently on the lookout for high-risk business credit card processing companies.
High-Risk Business Credit Card Processing Promotes Business Growth
If you are looking to succeed in a competitive global economy, especially in the eCommerce space, you will see that the pros of partnering with a high-risk merchant account provider are worth their weight in gold.
Low-risk payment processors impose card restrictions and this can undermine business growth, particularly for businesses courting customers outside their geographical location.
On the other hand, high-risk credit card processing companies give you an advantage and impact the growth of your high-risk business card payments in the following ways:
- Deals mainly with card-not-present purchases
- Allow high merchants to transact in multiple currencies
- Permit sales in high-risk countries i.e. outside the U.S., Canada, Australia, Japan, and Northern and Western Europe
High-Risk Business Credit Card Processing Increases Earnings Potential
High-risk payment processors give high-risk merchants unlimited earning potential. While low-risk merchants are limited in how much income their businesses can generate, high-risk merchants are not restricted in any manner.
With a high-risk business credit card processing account, you can increase your earnings by leveraging the following opportunities:
- Accept recurring or subscription payments
- Process payments over $20,000 every month
- Accept big-ticket transactions above $500
High-Risk Business Credit Processing Means More Opportunities
There is a long list of products and services that banks and credit card networks always avoid. Fortunately, most of these products and services get a pass with specialized high-risk business credit card companies.
Some of these high-risk businesses types include the following:
- Drug stores and pharmacies
- Travel agencies
- Debt collectors
- Firearm stores
- Tech Support Businesses
- Inbound and outbound telemarketing companies
- Credit repair
- Adult entertainment
- Online gaming
- Affiliate Marketers
- Bail bonds
- Life coaching
- Law firms
- Consumer electronics
High-Risk Business Credit Processing Helps With Business Longevity
Low-risk merchant accounts attract chargeback fees lower than high-risk merchant accounts.
However, this is not generally good news for low-risk businesses because if they end up having too many chargebacks, their accounts are terminated.
It is at this point that they are forced to seek out the services of a high-risk credit card processing company or watch their business gradually fizzle away because they can no longer accept card payments.
A merchant does not as easily forfeit a high-risk merchant account due to excessive chargebacks.
The high-risk merchant may face stiffer fines, but the longevity of the business is never in doubt. However, this does not mean that a merchant should be careless and not keep chargebacks in check. Too many chargebacks leave a huge dent in sales and damage customer feedback.
Making a High-Risk Business Credit Card Processing Decision
When it comes to opening a high-risk merchant account, it is important to find the right payment processor.
This is crucial because it is the responsibility of the high-risk payment processor to help a merchant find an acquiring partner willing to open a high-risk merchant account.
Choosing a High-Risk Merchant Account Provider
You should always open a high-risk credit card processing account with a long-term relationship in mind.
High-risk payment processors have a financial stake in your business because it is on them to fork out your chargebacks if you cannot cover them.
Do not blame them when they put you through a stringent application process to find out if you are a good fit because they need to protect themselves too.
Ideal high-risk business credit card companies use computer-based tools to access high-risk business credit card applications before taking them to a partner bank that identifies with your business goals or objectives.
One way to recognize an ideal payment processor is to confirm that they have access to a large network of acquiring partner banks that cater to different high-risk industries.
These high-risk payment processors know that this strategy gives you the best chance to get your high-risk business credit card processing application approved.
Steer clear of high-risk payment providers that do not have a vast network of acquiring partners. In other words, avoid providers that have no qualms submitting a credit repair and a digital software download application to the same bank. This inappropriate one-bank solution will inevitably dim your chances of getting approved.
Increasing the Odds of Getting a High-Risk Merchant Account
Be upfront and honest: Be an open book during your application process, refusing to disclose enough information about your business could damage your cause. Communication and transparency are always key.
Cash level review: Having money in your account is a good sign of profitability and stability. Acquiring banks love to see 25-30% of your monthly card volume transaction sitting untouched in your account.
Submit the right documents: Be prepared to submit a minimum of 3-6 months of your banking statements to increase the odds of getting a high-risk business credit card processing account.
Acquiring banks want to see a lengthy paper trail of where your cash is emanating from and where it is headed. Ensure that your tax returns are also in order because some banks might want to see them too.
Due to the wide array of business goals and risk factors involved in high-risk businesses, companies that offer high-risk business credit card processing accounts usually focus on custom pricing. In other words, it means that you are highly unlikely to find any rates or terms cast in stone.
If you find a high-risk payment processor of interest, set up a meeting with a company representative and let them know your expectations before listening to their offer.
It is always best to have a conversation with a company offering high-risk business credit card processing services before submitting your application.
This gives you an idea of what to expect from the very first day and what the future could look like.
Here are some relevant questions that you can ask a high-risk business credit card processor:
- Does the payment processor have any experience in your industry?
- What type of support will you receive after opening up an account?
- How long does it take before accessing your funds?
- What are the reserve requirements?
- Under what circumstances can the terms of the agreement change?
How Underwriters Approve Higher-Risk Merchants
It is always best to have a co-signer on your high-risk business credit card processing account with good credit. Healthy credit history is usually one of the things underwriters look at when considering your application.
Another thing they look at on your high-risk business credit card processing form is whether your information meets their requirements.
If you are selling online, your website must be secure and functioning properly without any interruptions around the clock. Your web pages must load quickly and all-important links must be totally operational and not broken.
Phone numbers and customer service emails must be clearly displayed alongside refunds, privacy, and other relevant policies.
In the case that the website requires a user ID or password, a test login or demo must be included in your high-risk business credit card processing application package because the underwriting team wants to see what your customers see.
During a high-risk business credit card account application, underwriters often email or cold-call to gauge your customer service. If the calls go to voicemail, there must be a message that introduces your company and informs the caller when to expect a callback.
On the other hand, if it is an email is sent and you are unavailable, ensure that there is an autoresponder in place that acknowledges the email and confirms when a response will be sent back.
Underwriting teams always take into consideration chargeback ratios and processing statements if your chargeback ratios are above the maximum chargeback threshold. Always include a short explanation of how you plan to bring them under control in your high-risk business card payments application and platform.
Bank statements are scrutinized to see if you have enough working capital to offset your processing volumes. Additionally, underwriting teams also confirm the authenticity of the corporate documents and any other relevant documents that you present.
If everything is in order, your high-risk business credit card processing account is approved and a merchant identification number is issued to initiate your high-risk business credit card processing.