What Is High Risk Credit Card Processing?

If your business is considered “high-risk,” it will be much harder for you to avoid expensive credit card processing fees. You may find it nearly impossible to even open a merchant account. The truth of the matter is that, while standard businesses enjoy low processing fees and quick access to premium merchant accounts, high-risk businesses like yours are often at a disadvantage. If your business is deemed high-risk, you’ll undoubtedly find it more difficult to find a credit card processing company to accept you.

This means that you will likely experience difficulties in moving beyond cash only payments. The unfortunate reality is that not all credit card companies are willing to take risks with sellers they deem potentially harmful. You might have to do a bit of digging to find the credit card processing company right for your business. In this guide, we’ll go over high-risk credit card processing and merchant services, explaining the concept and examining ways to combat it.

We’ll also give practical advice on what to look out for in high-risk credit card processing companies. So that you can find the business that is the right fit. By following the information in this guide, you’ll be one step closer to establishing a relationship with a quality card processor who can help you grow your business.

So saying that, let’s begin!

What Is High Risk Credit Card Processing?

High risk credit card processing means that conventional banks have categorized a merchant as “high risk”, therefore exposing the processor to greater risk and higher fees, tied to fraud and chargebacks.

It is important to keep in mind that high risk merchants are usually businesses that have an extensive history of refunds and chargebacks, which logically makes them more risky, and encourages the banks to try to protect themselves, in case of any chargebacks or refunds.

1. Sensitive Content

This one is pretty straightforward. If you sell makeup for a living, you will likely never be considered “high-risk.” Yet, if you sell adult paraphernalia or content, you’ll find that you are almost universally blacklisted by standard credit card processing companies. This is because sensitive content is considered high-risk for most processing businesses. For this reason, you want to examine the nature of your business before you contact any sellers. Ask yourself, “Could the content of my business be considered sensitive?” If so, it’s better to find businesses that offer merchant accounts to companies like yours. Say, for example, that you sell firearms. As a general rule, you can expect most credit card processing companies to consider you “high-risk.” With that being said, you’ll find that there are specific niche firearm merchant credit processing companies that are willing to do business with you. It’s better to contact these companies directly instead of wasting time contacting processing companies that likely will refuse to do business with you. 

2. Offshore Business

Most credit card processing companies perceive high-risk in foreign businesses that primarily sell to United States clientele. If your business is not based in the country of your desired credit card processing company. You’ll likely be forced to find a more accommodating option. The simple truth is that offshore businesses are more subject to fraud, meaning fewer companies are willing to take a chance covering your business. 

3. Poor Credit

You might be surprised to learn that your personal credit score can affect you here. If your credit is less than desirable. It’s possible that some credit card processing companies will refuse to do business with you. With that being said, you may not have any problems. If your business is successful, G-rated, and properly managed. It’s possible that many credit card processing companies will look the other way. This means that your best bet is contacting credit card processing companies beforehand to see if they are willing to offer you a merchant account. 

4. High Fraud Rate

Unfortunately, some industries are more prone to fraud than others. If your business operates in one of those industries, your company will almost be considered “high-risk.” For this reason, it’s encouraged to get in touch with high-risk credit card processing companies to find out more about their high-risk merchant services. Keep in mind that processing companies are generally looking at consumer fraud and not business fraud. In these situations, your business may still be targeted even if everything you do is completely above ground. 

5. Illicit Marketing Behavior

If businesses in your niche use illicit marketing tactics it’s likely that you will simply be denied a standard merchant account by association. Those types of tactics are spam calling, texting, or e-mailing, to reach out to new clientele. This means that you should be aware of the type of industry you are working in so that you can find a credit card processing company that works for you. More likely than not, you may be forced to find a high-risk credit card processing business that is willing to work with your specific type of business. Not sure if your business fits into one of these categories?

Check out this list below. While not exhaustive, this list contains a selection of business types that are generally flagged as high-risk by credit card processors: 

• Airlines
• Auctions
• Brokering
• Casinos
• Collection Agencies
• eBay Stores
• Fantasy Sports Stores
• Financial Planning
• Firearms Dealers
• Life Coaching
• Pawn Shops
• SEO Businesses
• Travel Agencies
• Vitamin Sellers

If your business is anywhere on this list, it’s likely that you will be turned down by major credit card processing companies. For this reason, you may need to go elsewhere to start your merchant account. In the next section, well examine what options are available for you. 

What Options are Available to You

By now, you might have noticed that your business is likely included in the “high-risk” category. If so, don’t worry. We know the struggle. While it’s true that high-risk merchants often find more difficulty in finding the right credit card processor, there’s no reason to despair. There exist a few options that you can take advantage of if you find yourself in this situation. 

For starters, you may consider contacting a specialized high-risk credit card purchasing company. These companies focus on providing specialized merchant services for companies that are deemed high-risk. While the services of these companies are typically more expensive than standard pricing for non-high risk businesses, unfortunately, that’s the way it is).

You’ll find that these companies often offer better-contracting options and prices. Even if you are high risk, it’s possible that a major credit card processing company will be willing to take a risk with you. Despite this, it’s likely that they will demand highly inflated prices to cover the risk. If you’re a small business or are starting, you may simply not have the funds to do so. For this reason, it’s important that you turn to specialized companies that understand the nature of your business and are prepared to offer you a better deal.

By doing so, you may give yourself access to unbeatable rates that you can’t find anywhere else. That being said, you should expect to pay a little more. In general, high-risk businesses are asked to pay: 

Higher Transaction Fees

Don’t be surprised if you are asked to pay nearly double the standard going rate per individual transaction. High-risk comes with high costs. Even if you manage to find a specialized high-risk merchant services provider you can afford, it’s probable that you’ll still be paying higher rates than the cupcake shop across the street. You’ll probably also find it more difficult to haggle your prices down. This is particularly true if you work in an especially sensitive field. Say, for instance, that you are looking to obtain firearm merchant services. Even under the best circumstances, you should expect to pay much higher than normal rates for standard transactions. 

Early Termination Costs

High-risk merchant services providers know that they are taking a gamble with you when they offer you a contract. For this reason, many of them include specific early termination fees in their contracts to prevent you from leaving. Unfortunately, you may be bound to the same company for up to five years, sometimes with immediate renewal afterward. This means that you should check beforehand so that you don’t end up getting stuck with a company that’s charging you more than they should. 

Higher Monthly Payments

You’ll also be asked to pay higher-than-average monthly payments for your services. This makes shopping around even more important, as higher costs could prove too much for businesses that are smaller or expect a larger volume of electronic transactions. While choosing a specialized high-risk merchant services provider can help you ease the costs of your monthly payments a bit, remember that you’ll still be paying rates that are more expensive than standard fees. This is important to keep in mind as you plan your budget and reach out to different providers. 

Helpful Tips

Finding the right high-risk credit card processing company can be tough. For this reason, pay attention to the following tips so that you can increase the chance that you find a service provider right for you. 

1. Don’t Rush It

We get it: if you’ve been turned down by scores of processing companies, it can be tempting to simply accept the first offer you receive. That being said, it’s crucial that you pay attention to the details of the company who is making the offer. Often, “high-risk” merchant service providers don’t live up to the reputation they claim. For this reason, you’ll want to make sure that you talk with the provider extensively, as well as do your research. Find out what customers are saying, and make sure you look into other providers, as well. 

2. Start with the Big Names

As you search for a high-risk merchant who will accept your business, you’ll want to start with the big names. You may be able to find what appear to be “sweeter” deals by going with smaller companies, but bigger companies come with a more established reputation and more reviews. This can help you find a company that you can trust. 

3. Ask

If you’re not sure if your company is considered high-risk, ask. Remember that every company is different. There’s a chance that you can pass as a standard company, even if you think you’re toeing the line. This means that your best bet is always to contact traditional service providers and inquire about your status. Doing so could help you find lower rates and better contracts. 

Pros and Cons of High Risk Credit Card Processing

Of course, credit card processing for high risk merchants is not something you should try to achieve, but it is not always a disastrous scenario. After all, one should always make the best from a bad situation.

Pros:

• Expanding to new markets. Standard processors can ban or restrain merchants from making transactions in multiple currencies (USD, EUR, etc.), as well as, from selling to customers outside of regions like the United States or Western Europe. This opens the door to high risk credit card processing to have higher sales, as well as profits, internationally.
• Increased flexibility in billing. Unlike standard processors, which can limit the amount of revenue generated from subscription billing, high risk processors can allow themselves to have much more flexibility in their billing procedures.
• Selling products in more category codes. Merchant category codes (MCC) typically prevent most standard merchants from working with tobacco, gaming, pharmaceutical businesses, etc. However, high risk accounts can trade in just about any merchant category code.
• Maintain a higher chargeback ratio. If standard merchants fail to keep their chargeback within an acceptable range, they could end up losing their ability to process payments, and be included on the Member Alert to Control High-Risk Merchants (MATCH) list. On the other hand, high risk merchants can have a higher chargeback ratio, without risking losing their processing. Therefore, this could be seen as an advantage for those merchants with a higher than average chargeback ratio.

Cons: 

• Extra service costs. As high risk clients almost always produce more chargebacks, credit companies and the like impose higher setup charges and larger monthly fees to compensate for this risk. Additionally, the ongoing cost of processing will also be higher than what it generally is. All these extra fees will most definitely make high risk credit card processors much less appealing.
• Required merchant account reserves. More often than not, high risk payment processors need to have a merchant account reserve. This is a type of savings account that does not pay interest and is used by the bank that bought it to protect against chargebacks. Furthermore, merchants are not able to access the funds until 180 days have passed from the date of the initial transaction, which can definitely make high risk businesses financially unsustainable.
• Damage to reputation. Another big drawback is the inevitable reputation hit that high risk payment processors take. So to no surprise, businesses that are labeled as “high-risk” due to excessive chargebacks, may be unable to engage with traditional payment service providers in the future.
• Additional chargeback fees. There is a cost to working with merchants with high chargeback rates by a high-risk payment processor. The processor will typically assess higher fees for each individual dispute.

Which Industries Are Considered to Be High Risk Credit Card Processors?

The nature of some businesses makes them more risky than others. These are usually more controversial industries, like firearms and tobacco, where tight regulations and constant lawsuits exist. Such factors can contribute to a bigger chance of business failure.

Additionally, other circumstances that lead to a higher risk include excessive chargebacks and disputes, accepting multiple currencies as payment, having $20,000 or more in monthly transactions, and having average transactions of $500 plus.

Here are some of the industries that are considered high risk by most lenders:

• Firearms manufacturers and retailers
• Tobacco, alcohol, and cannabis
• Gambling and sports betting
• Adult entertainment and content 
• Travel agencies and tour operators
• Health supplements and pharmacies 
• Forex, payday lending and check cashing services
• Debt collectors and auctioneers
• Dating services
• Subscription-based businesses

Conclusion

High risk credit card processing may not be a position that many merchants want to willingly be in. Still, despite the main drawback of facing heftier credit card fees, there are some advantages, such as higher profit margin, extra chargeback protection and the possibility  of delving into international markets.

Of course, you do not need to deal with this on your own. Electronic Transfer has been helping merchants with credit card processing since 1989. We offer a high risk credit card processing solution, FFL merchant services, online credit card processing, shopping cart solutions, and a lot more.
Feel free to check out our services, and rely on our expertise, over 50,000 merchants already have.