High Risk Merchant Processing Considerations and Concerns

Is your business deemed high risk? If so, you probably know how complex and exasperating the underwriting process can be. You may have also realized how difficult it can be to find a secure and reliable high risk merchant processor. This is especially true for business owners in the collections industry where a few persons continue to act unethically and against the regulation.

The presence of these untrustworthy few has caused banks and processors to view high risk merchant processing as a liability. What’s more, third party collection businesses now have limited options when it comes to underwriting choices they can pursue.

If you are unsure of what to expect as a high risk merchant, this article provides helpful information designed to prepare you for this journey. Note, however, that all processors are different. While the general process has the same blueprint overall, certain rules and information may vary from one provider to the next.

Getting a High Risk Merchant Processing Account Approved

Once your business has been deemed high risk, there are a number of factors that determine whether your application for a merchant account can be approved. These factors will also determine how much you will pay in merchant account fees. The underwriting guidelines adhered to by each merchant account provider play a big role here as they determine whether your high risk merchant account will be approved or not.

Longevity in the business is also another important factor. While it is still possible for new businesses to be approved for high risk merchant accounts, a merchant who has a long history of successfully processing credit card payments with another processor stands a better chance of approval. Ultimately, however, the lower your fraud prevention risks and chargebacks, the easier it will be to get your account approved.

Processing Fees for High Risk Merchant’s

 Often times high risk businesses attract quite a bit more than the regular merchant account. In fact, it could cost as much as 3-10 times the fee a traditional merchant account would attract. The fee largely depends on how much risk the merchant account provider will have to take in order to work with you.

As a result of the risks involved, many high risk merchant processors do all they can to tie merchants into signing long term contracts. But you do not need to be in a hurry to accept such contracts as some merchant account providers now offer month-to-month contracts. Though you may not have so much in terms of bargaining strength as a high risk merchant, you must avoid signing a contract that locks you in for the long term.

Long term contracts usually come with hefty penalties if a merchant decides to exit the contract. It would be unfortunate to lock yourself into a deal that doesn’t seem right for many years. So, if a provider tries to lure you into accepting a 3-year or longer contract, it is time to consider other options.

When presented the contract, it is also important to look out for a liquidated damages clause. This clause could be inserted to ensure your early exit fee is hefty as the contract wears on. In fact, many high risk merchant account providers demand exit fees that are double or even triple that of a regular merchant account.

The rolling reserve fee is another important one to look out for. It is a reserve placed on the money in your account, designed to cover for potential monthly chargebacks. Rather than having all of the proceeds made from sales, a certain percentage is withheld to take care of these chargebacks. Not every high risk merchant processor has a rolling receive, but it is one that protects both the provider and your business. By offering you high risk credit card processing, your provider is assuming additional risk; the percentage profit held back often reflects this added risk to accept payments via Visa, Mastercard, American Express and Discover.

One of your goals should be to find a processor that offers less than double or triple the rates for a traditional merchant account. Before signing any contract, ensure you read its terms as every processor has specific terms that guide their business. If you find certain areas impossible to understand while reading the contract, it may likely be a reason to consider a different provider.

Protecting Your Rates

Protecting your merchant account is of utmost importance as a high risk business owner. You should set up and promote processes that reduce the amount of chargebacks. Chargebacks can greatly impact on the approval process for a high risk merchant account. Rather than repeatedly running a cardholder’s credit card through your merchant account when it fails, let the cardholder know. If the nature of the transaction requires that you make multiple charges on a credit card, do this at intervals, allowing a few minutes before you process the next order.

If your merchant account is a seasonal one, ensure you let your provider know when to expect increased traffic on credit card transactions so your business does not appear fraudulent. Also be careful about the business transactions you process, as accepting payments from a range of unrelated businesses could raise a red flag. For instance, if you have an automotive store, processing credit cards for a hair salon would be out of place. All transactions should be related to your industry.

Choosing a High Risk Merchant Processing Provider

Many small business owners try to work with traditional merchant account processors to set up their high risk merchant account. It is important that you use a specialized high risk merchant account provider so you can rest assured of the best rates and terms. But who should you pick?

When choosing a high risk merchant account provider, find one with a great track record in approving high risk business accounts. A provider can promise you the best terms possible, but if they do not get your account approved, you’d only be wasting your time. You should be looking for a high risk merchant account processor who has at least a 99% success rate in approving new merchant accounts.

Some of the important factors you should look out for when choosing a high risk merchant account provider includes:

>> Duration of Contracts

As noted earlier, you shouldn’t be quick to sign multi-year contracts as a high risk business owner. While they are great for traditional accounts, they are not ideal for high risk businesses that process credit card payments. Multi-year contracts can only be great for the provider, and rarely so for the merchant. It is important that you find a processing company that offers month to month contracts for high risk accounts.

>> Fee Structure

Before signing even a month to month contract with a provider, it makes sense that you understand the fee structure that you are agreeing to work with. If there are areas of the contract that are unclear to you, ensure you highlight and discuss them. If you find any hidden credit card processing fees, ensure you negotiate them out of the contract before agreeing to the terms. Also be sure to negotiate processing rates for credit card and debit card as they are different, and debit card processing can be a sizable part of what your clients use for payment.

It is likely that you could use a payment structure known as interchangeable pricing, where you would be charged the traditional interchange fee, as well as a mark up fee.

>> Zero Fee Program

There is a program in Europe that allows business owners transfer the responsibility of processing fees to the consumer; it is known as Zero Fee Processing. The good news is that it has continued to grow in popularity in the U.S.  Though getting a zero fee account can be difficult in the U.S., it is not impossible. As the cost of accepting credit card payments continue to rise and cash back percentages soar, it may be the right time to give your customers more payment options. If you’re considering a zero fee merchant account, ensure your provider is compatible with this structure.

>> Cash Discount Program Ready

Like zero fee processing, this program allows high risk merchant’s to increase their prices to accommodate the processing fee in every price while giving a 4% discount to consumers who make cash payments. It is a unique way to eliminate merchant account processing fees. If you’re considering a cash discount program, ensure your provider is compatible with this structure.

High Risk Merchant Processing: Understanding the Risk Factors

Accepting payments is a top priority for any ecommerce or online business. Whether your customer is paying via credit or debit cards, transfers or online checks, your business must be able to accept online payments. To achieve this as a merchant, you need a payment gateway that would act as a link between you, the bank and credit card networks.

However, as noted earlier, securing this service is not so straightforward for high risk businesses. Banks and processors access the risk factors associated with doing business with you, not just based on the service you provide or the products you sell, but also on potential for chargebacks, account losses, recurring payments, large transactions, and fraud. Your business might also be considered high risk if you sell products that have a history of bankruptcy, blacklisted for fraud, or considered illegal. Another important factor is if business owner has a bad credit history, offers infrequent processing, or has not been registered with the local regulatory agencies.

In the end, even if your business is as ethical and immaculate as any out there, banks and merchant account processors appraise the industry as a whole, using other business owners therein as a benchmark. For instance, if your real estate company does not have any history of fraud, your competitors in the industry may be found wanting in this regard. As a result, real estate is considered high risk. As noted earlier, merchant account processors have unique compliance thresholds and differ in the way they assess high risk businesses. So, as much as having a merchant account that can accept payments is crucial to the survival of your business, you must ensure that you only agree to the best terms to ensure the growth of your business.