High Risk Credit Card Processing: What Every Merchant Needs to Know
Banks and credit card processors retain the right to determine which merchants they wish to work with. Some merchants find they are deemed high risk by these organizations, and this may occur for a number of reasons. The bank or credit card processor may label them high risk due to poor credit or because of the industry the merchant serves. This includes businesses such as dating services, multi-level marketing companies, weight loss providers, and credit repair organizations, among others. Furthermore, a processor or bank may feel the company is more at risk of potentially fraudulent charges, thus they are considered high risk.
If I need high risk credit card processing, what should I do?
How Does A Company Know If They Are Considered High Risk?
The first thing a merchant needs to determine is whether they fall into the high-risk category. This can be confusing, as each credit card processor and bank have their own standards for determining who falls into this group. This is determined by their risk department. Some companies make use of very stringent standards, yet others are more lax and willing to work with companies they consider to be high risk. Certain businesses now specialize in high-risk credit card processing, thus a business may need to begin their search with one of these providers. This is especially true for a company that has already been turned down by a number of organizations.
Factors That Lead To A Merchant Being Deemed High Risk
Anytime a credit card processor or bank makes a decision as to whether to work with a merchant, they look at many factors to determine their level of risk. In addition to the reasons mentioned above, a business may be deemed high risk if they are an offshore company or if their products are illegal in one country but not another. Questionable sales and marketing tactics may lead to a company being labeled in this manner, and the same is true of those where fraud has been a significant issue in the past.
Industries That Are Typically Considered High Risk
- Amazon or Google stores
- Bankruptcy services
- Check cashing providers
- Credit repair or counseling
- Collection agencies
- Discount health programs
- E-cigarette merchants
- Fantasy sports merchants
- Investment firms
- Lingerie merchants
- Loan modification providers
- Modeling agencies
- Pawn shops
- Search engine optimization services
- Social media sites
- Ticket brokers
What Should A High-Risk Merchant Expect?
High-risk merchants need to be prepared to pay a higher interest rate for their credit card processing. This does not mean, however, that all banks and credit card processors are the same. Businesses falling into this category need to ensure they read the contract offered by every provider they are considering working with. The interest rate and terms and conditions vary greatly among providers. When reading over the contracts, the merchant needs to look for added fees, such as termination fees, or rolling reserve requirements. The high-risk credit card processor uses this reserve to protect their business in the event a merchant closes down without warning, experiences a large number of charge backs or has been accused of fraud.
How To Find High-Risk Credit Card Processing
Companies often want to know how to find high risk credit card processing. The best place to start is with standard credit card processors or banks. If the application is turned down, ask if they offer high risk credit card processing. Some companies advertise these services, yet others do not. They only offer the service if an applicant asks, as this helps to minimize their level of risk. Another option is to make use of an overseas entity, one willing to underwrite transactions for merchants. Be wary of using this option, as not all overseas providers are reputable. Furthermore, there is very little oversight or regulation of those providers. A number of companies do offer these services, so merchants will have options. Remember to read every contract thoroughly, however, to ensure there are no surprises in the future.
Maintaining A High-Risk Merchant Account
A company’s work isn’t done once they obtain a high-risk merchant account. They must then maintain it, and this can be a difficult task. To avoid losing this account, try to minimize the number of charge backs and other penalties incurred. In addition, be sure to follow the processing agreement exactly, as this helps to prevent problems with the credit card processor or bank. Companies offering these services are very careful and become suspicious when a company has a number of issues arise. Try to avoid problems before they start for this reason.
Does It Work?
Does high risk credit card processing work? This is a question every merchant will likely have when they find they have been labeled high risk. The answer to this is yes, as it provides a way for companies to offer the option of paying by debit or credit card. This helps to increase sales and benefits the company in the short and long runs. Studies consistently show people spend more when they are using a card to make a purchase. These higher sales help offset the fees associated with a high-risk account.
Obtaining a merchant account with a bank or credit card processor may seem to be more hassle than it is worth. Don’t give up, however. The more options a company can offer a customer, the more satisfied they will be in the long run. Keep this in mind, and compare providers carefully. There is one out there for every business. It’s simply a matter of finding this provider.