Operating an online store has its benefits and its fair share of challenges. One such challenge is finding a way to accept payments online from your global customer base. The usual process involves approaching a payment process and applying for a merchant account.
The payment processor evaluates your business model and comes up with the correct business classification. This can be either high-risk or low-risk. If you find yourself classified in the former category, your search for a payment processor becomes harder.
We will look at the factors that may make your business high-risk. But if it is, you need to find a high-risk payment processor. Unfortunately, they’re not as many high-risk payment processors, and even among the limited options, you still have to tread cautiously.
You need to understand what it means to have a high-risk payment processor and what you should expect. This guide covers what you need to know when looking for a high-risk payment processor and how to ensure you get the right one.
What Makes a Business High Risk?
If you’re just considering getting a merchant account, it will help to know if your business might be regarded as high-risk so there are no surprises.
Various reasons can contribute to your business being deemed high risk by payment processors. Every provider has a different set of criteria for classifying business merchant accounts. But, in general, here are a few reasons why your business might be labelled high-risk.
High transaction volume
Having a high transaction value means business is booming. But merchants may be considered high-risk if they have a high volume of transactions or have a high average transaction rate. If the merchant processes over $20,000 in monthly payments, or an average of $500 or more, they may be classified as high risk.
Accepting international payments
If a merchant sells to customers globally, especially in countries with a high risk of fraud, they might be considered high-risk. That is almost any country except Canada, Japan, the US, Australia and countries in Europe.
New merchant
Being a new merchant can put a target on your back. If you have never processed payments before or only have a short history of processing transactions, you might be considered high risk because you don’t have a record.
High-risk industry
Even if you have a spotless record, you may still be labelled high-risk because of the industry you’re working in. some industries have a higher risk of fraud, chargebacks and returns. Some of the industries commonly deemed as high-risk include the following:
- The adult industry
- Gambling
- Online dating
- Multi-level marketing
- Subscription services
- E-cigarettes, vape shops and CBD
- Furniture and electronic stores
- Travel, airlines, cruises and vacation planners
Low credit score
A low credit score, for whatever reason, makes you appear as high risk. Maintaining a spotless credit history goes a long way in making a case for you if all the other factors are consistent with a low-risk business.
Difference Between Regular and High-Risk Accounts
Being considered high-risk comes with certain challenges you should be aware of when signing up for the account. Being aware of the differences from experts as a high-risk merchant will help you prepare and find solutions to them before they become a real problem. Some of the challenges often associated with a high-risk merchant account include the following:
Higher payment processing fees
High-risk payment processors are more cautious about high-risk businesses and often charge more processing fees to handle the high volume of transactions. The standard fee for a small business account is usually in the range of 0.3% on top of the interchange rate. The fee for high-risk accounts might be 1.5% above the interchange rate. However, the actual fees will vary by company and the reason why the payment processor considers you high-risk.
Lengthier application process
Getting approved for a regular merchant account only takes a few minutes, sometimes less. But the same process for a high-risk account can take days to get approved. This is because high-risk merchants are asked to provide more information about their businesses, including bank statements, and they may have their personal credit checked. Verifying the information provided takes time, so it might take longer for high-risk merchant accounts to get approved.
Higher chargeback fees
In addition to refunding the original amount, a high-risk merchant is also on the hook for chargeback fees. The actual fees vary depending on the business but are charged per transaction and can be significant.
Cash reserve requirements
The payment processor might hold on to some of your business’s cash as a reserve. These requirements are baked into the payment process using various methods:
- Capped reserve – For a capped reserve, the payment processor withholds a percentage of each completed transaction until the total balance reaches a predetermined level. Once achieved, the deductions stop, and the reserve remains to cater for chargebacks and refunds.
- Rolling reserve – For a rolling reserve, the payment process sets aside a percentage of as high as 10% of every completed transaction, which you can receive later. If, for example, your agreement uses a six-month rolling basis, you will get the balance after the rolling period and begin fresh.
- Upfront reserve – the merchant must send the payment processor a set amount that becomes the reserve. In some situations, the payment processor can withhold all the completed transactions until the set amount is reached.
Volume caps
Although having a high-risk merchant account allows you to process higher transaction volumes, some payment processors can limit the number of card transactions and the amount you can process each month.
Additional technical requirements
Other requirements that might be attached to your high-risk merchant account might include using tools that ensure you’re not selling age-restricted products to underage customers and so on.
It’s vital to remember that these requirements depend on the high-risk payment processor you settle on. Therefore, you must take time to find a service with the best and most friendly terms.
What to Do If You Need a High-Risk Payment Processor?
Finding a high-risk payment processor can be a daunting and draining task. But you can increase your odds of finding a payment partner by bringing out your best. Here are a few tips on what you can do to make it easier to get a high-risk merchant account:
- Be honest – You will easily get approved for the account if you’re honest during the application process. On the other hand, trying to disclose as little information as possible can hurt your cause. If the service feels you’re hiding something, they will most likely decline your application.
- Review your cash levels – Having some cash on hand shows that your business is stable. Most banks want to see between 25 to 50% of your monthly card transactions sitting in your account.
- Compile your documents – Most payment processors will ask for at least three to six months of bank statements during the application process. These statements should show where the cash is coming from and where it’s going. Some banks will also want to see a few years of tax returns.
- Improve on factors within your control – There are factors about your business that are beyond your control. But in some cases, like credit history and rating, you can take measures to improve your credit score or reduce chargebacks. Improving these factors for some high-risk payment processors can get you more appealing rates.
- Communicate early and effectively – Some chargebacks are a result of unhappy customers. You can reduce such chargebacks by reducing those kinds of chargebacks. Ensure you have an understandable return policy and shipping policy. Post it in an easily identifiable place so customers can reach you easily to resolve the issue directly. This can go a long way in reducing the chargebacks and reducing your risk assessment.
- Be ready to learn – Research as much as possible on payment processing and what payment processors are looking for. But at the same time, don’t pretend to be an expert. Instead, rely on the expertise of the payment processor representatives. Ask for assistance where necessary and be prepared to implement their recommendations.
With those few tips, you’re ready to begin finding a high-risk merchant account. And it all begins with finding a high-risk payment processor.
What is a High-Risk Payment Processor?
A high-risk payment processor is a vendor that manages the logistics of managing card payments and specialises in high-risk merchant accounts. The processor shuttles data whenever the customers enter their payment details to the payment networks and banks involved in the transaction.
For stores and eCommerce stores that want to accept card payments, a payment processor is a must. If you’ve previously tried applying for a payment processor and your business was labelled as high-risk, you should consider working with a high-risk payment processor.
How to Open a High-risk Merchant Account
The first step to opening a high-risk merchant account is to find a high-risk payment processor. There’s a vast pool of potential options you can consider. But remember, being a high-risk merchant means you can expect a lengthy process.
For the application process, you will need a lot of paperwork. Some of the documents you should prepare include the following:
- A company incorporation certificate
- Shareholder’s certificate
- A chart showing your business’s organisational structure
- Copies of passports and utility bills for local directors and shareholders with more than 15% stake
- Processing history for at least the last six months
The decision to approve or decline your application is made case-by-case. Some payment processors may request more documentation, and others might approve with less. Various factors will impact the kind of offer you receive.
Going for a high-risk merchant account has its benefits and drawbacks. Therefore, you should carefully consider each to create a realistic expectation of your selected high-risk payment processor.
Benefits of High-Risk Accounts
-
With a high-risk merchant account, you can provide your shoppers with a wider range of accepted payment methods. Some options go as far as including cryptocurrency in their payment options.
- There are higher chargeback thresholds and refund rations
- You get advanced fraud and chargeback mitigation technology
- There’s a lower risk of account termination with a high-risk merchant account
- You get more access to the international market and various currencies.
- Detailed underwriting customised to your business needs
- Fewer limitations on ticket sizes and sale volume
- You get more freedom in terms of the products and services you sell
- You can scale up more easily with a wider market and better liquidity
- You get a dedicated support team that understands your business and the industry you’re in
Drawbacks of High-Risk Accounts
-
A high-risk merchant account attracts higher processing fees
- Most high-risk payment processors will require that you open a reserve account which can take as much as 50% of your average monthly volume
- The rolling reserve can sometimes be held up to 180 days after you close your account or longer.
How to Find the Best High-Risk Payment Account
Your online store’s success depends on picking the right high-risk payment processor. In a field where not many ventures into, it’s easy to fall prey to a few opportunistic payment processors if you don’t take the time to find the right one. Here are some key factors to consider when looking for a high-risk payment processor.
Shop around
Don’t settle for the first service you find. Instead, shop around and compare what different services are offering. Though limited, there are enough options available, and the terms of service vary widely. The goal is to find a payment processor whose terms align with your business.
Ask about reserves
It’s almost certain that any high-risk payment processor will require some type of reserve to protect themselves from chargebacks and fines if the business suddenly closes. However, the reserve requirement changed from one service to the next.
Inquire if your provider requires a reserve. If they do, is it a rolling or a capped reserve? Each method of managing the reserve has different implications for your business that you should consider before signing on the dotted line.
Payment transfer time
Payment transfer times are hugely important for any business. This is the period it takes for money to move from the merchant account to your bank account. It could be anywhere from a few days to a week. You could find your business cash-strapped if the payment transfer times are long.
Chargeback threshold and refund ratios
High-risk payment providers may allow more flexibility than financial institutions. However, they also have a chargeback and refund ratio threshold that they don’t want their clients to cross. It’s critical to know the ratio threshold with your provider. If it’s too restrictive, you might have your account cancelled sooner.
Do they accept international cards?
The idea behind having a high-risk payment processor is to provide your customers with more options. Besides the local cards, ask the provider if they accept international cards and if they have any other payment methods that they accept, like cryptocurrency. The more payment options, the more customers you have covered.
Review term length
Ensure you understand the term lengths and the conditions and terms attached to the period. On average, the term length is three to five years. However, some merchants have automatic renewal clauses that you should pay extra attention to as well as other specifications.
The goal here is to find a high-risk payment processor that is lenient and whose services and terms are favourable for your business. It’s not likely that you will get similar terms and conditions as low-risk merchant accounts, but at the same time, the provider shouldn’t be exorbitant in their fees and conditions.
The Best High-Risk Payment Accounts to Consider
If you still can’t find a payment processor that appeals to you and your business needs, here are some of the best high-risk payment processors to point you in the right direction. You might even find the perfect one among these options.
Pay iO
Pay iO is a leading, innovative payment processor specialising in high-risk merchant accounts. With a slew of features and a forward-thinking team, Pay iO offers merchants are world of opportunities to grow their businesses by accepting various forms of payments.
With services tailored to small and large high-risk businesses, you will find suitable packages designed just for your business. As a leading payment processor, Pay iO understands that even among high-risk businesses, there are special needs and works to deliver features that provide solutions to those features.
Pay iO’s feature list includes:
- Mobile and app access through secure and safe mobile apps and the internet
- Tailored features for small and large businesses like global payment solutions and transaction and expense management in one platform
- Competitive currency exchange rates for businesses receiving global payments in different currencies at friendly rates
- Multi-currency transfers with a global network outreach, meaning you can have an account anywhere
With a full suite of payment solutions, including open banking, Pay iO offers unlimited opportunities for budding and established businesses in high-risk industries looking to expand their wings.
With Pay iO, you can easily integrate the next generation of payment solutions into any application. The onboarding process is relatively fast but thorough. A dedicated team takes time to understand your business and needs ensuring you get the right services that make payment processing convenient for you and your customers.
Payment Cloud
Payment Cloud offers payment processing services for low-risk and high-risk merchants. But its bread and butter is in approving accounts for various high-risk industries. The company offers the following primary features:
- A free credit card terminal available with each account
- Mobile processing solutions
- Virtual terminal
- No account setup fee
- No monthly minimum for low-risk accounts
PaymentCloud is best at placing high-risk merchants that rely on a network of third-party processors and acquiring banks to get approved for an account.
Merchant feedback indicates the fees and rates by PaymentCloud are reasonable even for high-risk accounts. However, you should obtain a pricing quote from the provider to get the full picture.
Most merchants report being able to open an account on PaymentCloud without any application or account setup fees.
With a great online reputation, PaymentCloud is one of the most favoured high-risk payment processors due to its efficient and reasonable terms. Merchants on PaymentCloud get access to numerous payment gateways for quick transaction processing.
PayPal
PayPal is an extremely reputable and well-known high-risk merchant account provider. It is one of the oldest in the industry and comes with a wealth of knowledge and information.
PayPal leverages its vast network and eWallet services that make it easier for merchants to receive money without it having to hit their bank accounts. It is the ultimate merchant account for any online business. It can be used for physical transactions and debit and credit card payments.
However, despite being wildly popular, most high-risk merchants that have tried PayPal have negative reviews about their experience. Most of them report their accounts being erroneously closed and unable to access their funds for an extended period. Others have had challenges receiving payments despite following proper procedures, only to have their payments declined.
Some have had a positive experience with the provider, which is why it is the most commonly used, but it is worth noting the downsides as well to be fully aware of what to expect.
Final Thoughts
If you suspect your business might land in the high-risk category, you should know that you don’t have as much control over the payment processors you pick. Compared to low-risk providers, only a handful of high-risk payment providers are available. Luckily, the number is gradually growing.
The essence of starting a business is to make money. Considering that the payment processor will handle your payments, you shouldn’t take any chances when selecting the right one. We have shared everything you need to consider when selecting and even a few samples of the best payment processors for high-risk merchants to get you started.
Search wide and thoroughly to give your business the best chances of success and convenience for your customers. It might take some time, but as long as you do it right, your time will be worth it.
