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High Risk Credit Card Processing

The Best High-Risk Merchant Accounts for Credit Card Processing

Now, before you go out and choose a high risk merchant account provider, we strongly advise you to familiarize yourself with how high risk merchant accounts function.

There are a lot of purchasing aspects you should consider going ahead in order to make an informed selection – and this is precisely what we discuss in our "high risk merchant account buyers guide" below.

Our Top Choices for High-Risk Credit Card Processing Firms
Buyers Guide for High-Risk Merchant Accounts
What exactly is High Risk?

Let's start with the definition of "high risk."

Although the word "high risk" may appear obnoxious at first, don't let it annoy you.

There are several reasons why firms are classed as high risk, and the majority of them aren't as "evil" as the phrase suggests.

We all know that credit card companies (VISA, MC, and so on) want to safeguard their clients (i.e., the individuals who use credit cards) since they make a lot of money from them.

As a result, credit card firms provide their consumers with the opportunity to challenge fraudulent transactions, chargeback purchases they no longer want, and provide their cardholders with whatever peace of mind they want to use this tiny piece of plastic.

A little piece of plastic that, in many situations, lets individuals to spend far more money than they actually have.

So, where does risk come into play?

What happens when a customer is dissatisfied with a purchase and wishes to submit a chargeback?

The bill is borne by the company owner (or merchant, aka YOU).

However, if that firm becomes insolvent or goes out of business, the merchant services provider (MSP) must reimburse the loss.

On the MSP side, this is where "risk" comes into play.

Some sectors, such as weapons, bail bonds, marijuana, and so on, are statistically more "risky" than others.

Statistically, certain firms are more vulnerable to fraud, such as those that take payments online when there is no physical person there to verify the appropriate card owner, or those that accept payments online when there is no physical person present to verify the proper card owner.

Statistically, some firms are more likely to have chargebacks than others, such as those that automatically enroll clients in monthly payments following their initial purchase.

Statistically, some company models are more likely to have chargebacks than others, such as those that provide subjectively high-quality services. "I bought a website from him, but I don't like it at all."

These are some of the reasons why a company may be labeled as "high risk," while in reality, they just have more chargebacks and fraud.

It doesn't make them wicked or wrong; it only makes it more hazardous for a merchant account provider to provide them credit.

So, then... What exactly is a High Risk Merchant Account?

What is a High Risk Merchant Account?

A high-risk merchant account is a payment processing account designed to accommodate businesses that are statistically less predictable, more prone to disputes/chargebacks, and pose a higher level of potential loss to the merchant service provider and bank that provides them with the technology and infrastructure to accept payments.

When we talk about establishing a high risk merchant account, we actually mean selecting a company that will provide your company with the resources it needs to take credit card payments from your customers, whether in-person or online.

Pro tip: You want this to be a powerful collaboration. One in which the MSP is intimately familiar with your firm and you have a good working relationship with the MSP.

The Role of the Merchant Account Provider

When a merchant service provider (also known as a merchant account provider, credit card processor, or simply merchant processor) joins with a firm, it provides several major functions:

To supply the merchant with the technology, software, and infrastructure required to take credit card payments and receive money for those sales.

On behalf of the company, the MSP engages with card companies (VISA/MC/etc.) and banks. When credit card transactions are handled, there are a lot of intricate moving elements going on behind the scenes, such as authorization, settlement, and so on, and the last thing a business owner wants to deal with is additional stuff to deal with.

In certain ways, the MSP functions as a financial guarantor for the company. If the company experiences fraud, excessive chargebacks, or refunds that it cannot pay, the MSP is left footing the price.

MSPs charge fees to deliver these services to company owners. There's nothing new there. And the costs are greater for businesses in high-risk categories.

For example, if you have a history of being in a lot of accidents and drive a very costly automobile, your insurance rates will be higher than the average.

The same is true for merchant accounts. When it comes to payment processing, if your business, industry, or marketing plan is deemed "high risk," you will face extra restrictions, fees, and so on.

So, why pick a high risk merchant account if they are more expensive?

Why Should You Opt for a High-Risk Merchant Account?

Let's take a moment to discuss the advantages of high risk merchant accounts.

As a company owner, a seemingly natural question to ask oneself right now is "why would I pick an account when I know the costs will be higher?"

That's an excellent question.

The easiest approach to answer that issue is to ask how long your company could exist without the capacity to take payments other than cash or check.

High risk merchant accounts shield YOU from business hazards in addition to lowering risk for the merchant account provider.

Most company owners are unaware of this information (or are utterly unaware of the difference between high-risk and low-risk in the first place) and will just select an MSP that is easy to set up and has minimal costs, such as Paypal.

Make An Account

Enter some information and you're done.
Sounds fantastic, but the issue is what happens when (not if, but when) something in your day-to-day business operations (or your industry or marketing model in general) raises a red signal in their system.

As an example:

  • There are too many chargebacks.
  • Any sort of deception.
  • A successful month (ex: your business has a good month, or runs a killer promo, and does an out of the ordinary amount of transactions or transaction volume).
  • Your website has been compromised.
  • The MSP's policies change, and you are no longer covered.
  • Fraud occurs against a major rival in your sector.
  • There is more public criticism of your sector or marketing model, for example.

And before you know it, your account has been frozen or closed.

For one day, you are unable to take credit card payments. Perhaps two days. Perhaps a week. Maybe a little longer.

Your only option is to contact chat support with someone from India who plainly doesn't know or care about what's going on and hope that they have the authority to reactivate your account (good luck).

So the true advantage of using a high risk merchant account provider (when your firm is on the risk spectrum) is that they plan for all of this before your account is setup.

Note: If you own a small business or are just starting out, you might want to look at our suggestions for the top credit card processors for small businesses.

The Advantages of Underwriting High-Risk Merchant Accounts

  • Global Expansion Capability
  • There are no volume limits.
  • Chargeback issues have been reduced.
  • Payment flow has been streamlined.

Underwriting

First, let's clear up a common misunderstanding shared by 99 percent of high-risk business owners. The error is to register an account with a firm such as Paypal, Stripe, or Square and mistakenly believe they have a merchant account - after all, you can accept payments, right?

These businesses will let you utilize their merchant accounts. They are referred to as merchant account aggregators. They have no idea what you sell, how you market it, how you deliver it, or whether you deliver it at all.

They are banking on the premise that if someone is committing fraud, they can simply close the account and freeze your money — which occurs on a daily basis. They allow you to set new accounts quickly and close them even faster.

So, when your organization is on the risk spectrum, the major benefit of picking a high risk merchant account provider is peace of mind that you may continue commercial operations in the face of fraud, unusual activity, or a variety of other reasons.

How? With excellent underwriting.

The most important "secret" in obtaining a dependable merchant account is to deal with a vendor who thoroughly knows your business and genuinely wants to work with you.

MSPs who perform their due research to understand you can assist in protecting you. If they know what you're expecting, they'll be considerably less likely to shut or freeze your account should things go wrong.

Inevitably? After all, you are a high-risk firm, therefore there is a good possibility something will go wrong.

Underwriting prepares your MSP and you for this unavoidable event.

Factors and Examples of High Risk Classification

There are several elements that contribute to increased risk. Let's look at a list of some of the high risk indicators that might label your company as a "high risk merchant."

  • Low credit, terrible credit, or no credit as all? This is true for both the business owner's personal credit score and the credit score associated with the EIN.
  • There is no prior history or experience accepting credit cards.
  • Any history of fraud or illegal activity by the company or its owner.
  • The merchant does business (makes sales) on a global scale

Businesses that market "reputational risk" products/services, which means that what they sell is potentially contentious from a public relations standpoint and that banks simply do not want to be affiliated with (ex: adult products, marijunana smoking pipes, etc.).

Highly regulated sectors are more likely to attract bad people or undesirable behaviors. When restrictions are stringent, it encourages individuals to breach the law in order to avoid them (have you seen the film The Wolf of Wall Street?).

These industries are more likely to have merchants that violate laws/regulations and face penalties, closure, and other consequences (ex: alcohol, tobacco, firearms, financial products). It doesn't matter if your firm is doing it; others in the industry are, which raises a red signal for banks.

Orders/transactions can be placed via mail, phone, or internet. Basically, if something may be purchased when the card owner is not physically there, a larger risk of fraud, chargebacks, and so on exists.

The average transaction size is large. Chargeback losses are more severe when the item is pricey (would you rather repay someone for a $5 service or a $5,000 service?)

High chargeback rates in the past. Excessive chargebacks deviate from typical charge-back ratios, indicating that something is wrong with the merchant's products/services, consumers, customer service, product delivery, sales strategies, or all of the above.

In addition to these considerations, many sectors and business structures are deemed high-risk by default, regardless of whether they meet the above list.

If your company falls into one of these categories, it may be classified as high-risk.

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