What is high risk credit card processing?

High risk merchants, like all others, must establish a merchant account to process credit card payments. Because more risk is associated with processing payments for a high risk business, banks charge higher fees and impose stricter terms on merchant accounts for such businesses.

What we’ve just described is good news/bad news for high risk operations.

The bad news is a high risk merchant account may put the merchant at a competitive disadvantage if competitors are able to obtain accounts on more favorable terms. In addition, the additional fees and other costs associated with a high risk merchant account impede cashflow and make conducting business more difficult for the merchant.

The good news is that a high risk merchant account, despite the drawbacks, enables the merchant to accept a universally popular method of payment, and thus increases the merchant’s ability to attract new customers, retain customers and increase sales to existing customers. Without the ability to process credit card payments, many companies would have a difficult time staying in business at all.

Our company specializes in helping high risk merchants obtain and maintain merchant accounts with the most favorable terms possible. And more good news: Many merchants have some control over their abilities to demonstrate lower levels of risk and have their merchant account fees reduced and account terms relaxed. We spend a great deal of time with our clients trying to achieve these results.

Banks classify companies as being high risk for credit card processing because their businesses are more susceptible to fraud, incur a high number of chargebacks, have weak finances or operate in a vertical that is considered risky. With this in mind, things you can do to reduce the riskiness of your business and get a better merchant account include:

  • Become PCI-compliant in your policies and systems for storing and transmitting digital data (such as credit card information).
  • Install, patch and regularly update antivirus and malware software.
  • Make return and refund policies clear, fair and easily findable.
  • Have your company descriptor (the company name that appears on a customer’s credit card statement) match your brand exactly, so the customer is sure to recognize it.
  • Make the descriptions of your sale as they appear on the credit card statement clear — this reminds the customer what exactly he/she purchased.
  • Build cash reserves into your financial planning to accommodate the need for a merchant account reserve fund.
  • For brick-and-mortar merchants, train the staff to recognize the warning signs of fraudulent credit card purchases, such as attempts to place rush orders at closing time, producing a credit card from a pocket rather than a purse or wallet, etc.
  • Resolve outstanding personal and company credit report issues.

A few cautionary notes are worth mentioning here. First, the actions listed above take time to prompt a response from banks. Financial institutions want to see improvements implemented and sustained over several months before taking action to reduce terms or fees on a merchant account. Second, if your business is in a regulated industry (such as firearms) or an inherently high risk industry (such as travel), then your company will be deemed high risk even if your own risk mitigation exceeds the industry average. Third, if you do everything right in terms of mitigating risks, you may succeed in reducing the fees and terms of your high risk merchant account — but you’ll still most likely have an account that is less attractive than one a low- or medium-risk merchant could get.

If you would like to explore new payment processing solutions for your high risk business, please contact us now. We have decades of experience and will help you find a better way!

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