High-Risk Credit Card Processors and Your Business

Hearing the term ‘high-risk’ already sounds alarming. Tie that with your business, and there’s bound to be some worry! While it’s wise to stay alert, the situation isn’t as clear as it seems. When it comes to high-risk credit card processing, many things come into play. For many merchants, the cost of being a high-risk merchant may face some trouble and benefits.

What does it mean?

For a business to accept credit card payments, they must obtain a merchant account with a bank. The cost of this service depends on a number of factors, including the type of business, the tractions performed, and the risk of loss. If a business is higher in risk, there are usually higher fees. This is because most banks want to avoid these merchants due to their risks.

The main danger that they are worried about is chargebacks. What causes chargebacks?

  • types of service or product being sold
  • average dollar amount for monthly sales
  • the countries the merchant sells to

A bank making a high-risk status is their way of defending against the cost of too many chargebacks.

Trouble for businesses

Here’s a list of some potential problems you can run into for being ‘high-risk’:

  • Excessive fees
    • The banks work with the assumption that their high-risk clients will produce more chargebacks. Therefore, they charge more for the initial set-up.
  • Revenue-stealing rolling reverses
    • High-risk payment processors commonly require their clients to have a merchant account reserve. This is a non-interest-bearing savings account used by the acquiring bank as a type of insurance. When a chargeback is filed against an organization, and the merchant isn’t able to reimburse the issuing bank from its regular account, the reserve will be tapped to cover the loss.
  • Increased chargeback fees
    • Each time that a chargeback is received, the business is charged a fee that will cover the administrative costs.

Potential benefits

Believe it or not, there are also some pluses to being a “high-risk merchant.” They are as follows:

  • Global expansion
    • Many merchants across the globe find that the pros of using high-risk payment processor outweigh the cons of high processing fees.
  • Unlimited earning potential
    • Processors will limit the amount and type of money earned from low-risk merchants through credit cards. Low-risk merchants can’t do the following:
      • Offer recurring payments
      • Process more than $20,000 per month
      • Accept credit card transactions over $500
      • Sell particular services or products
    • Non-threatening chargebacks
      • Just because lower-risk merchants face lower chargeback fees doesn’t mean it’s better. Acquiring banks constantly monitor the chargeback-to-transaction ratio of their merchants. For lower-risk merchants, their threshold is around 1%. If it’s crossed, they can be immediately terminated. This won’t happen with a high-risk merchant.

There are several companies out there who will help with high-risk and high volume businesses. Do your research and find what the best fit for your company is.

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