High Risk Credit Card Processing: How is it Different?

Payment Processing

If you run a high-risk business or you operate in a high-risk industry, you may be considered a high risk by your credit card processor. That means you could be facing higher rates and additional terms and conditions that other businesses don’t have to deal with. Additionally, if you have volatile revenue streams, bad credit, low cash reserves and lots of chargebacks and other red flags, you may end up paying more for the same services that others could get for less.

When it comes to high-risk credit card processing and other payment processing mechanisms, expect to pay higher rates, additional fees and be subject to high reserves that could make it challenging to actually operate your business on a day-to-day basis. Sure, you’ll have some recourse if you can reduce chargebacks and other negative factors, but a high-risk designation can be a serious problem for any business.

Credit Card Processing In a Nutshell

As the primary way that businesses accept customer payments in person, over the phone or online, credit card processing involves point-of-sale hardware or a software layer that interacts with payment networks and credit card processors.

But because online and phone payments don’t require physical possession of the credit card, online payments can be seen as high-risk payment processing methods that need additional checks and balances. Generally, risk is a big component of the credit card processing industry, and those that are deemed high risk have higher rates, fees and additional hoops to jump through with regard to their credit card processing.

What Are High-Risk Merchant Accounts?

As the name suggests, a high-risk merchant account is a merchant account used by a high-risk business or a business that operates in a traditionally high-risk industry. They may have a history of frequent refunds and chargebacks, and it means higher fees and other regulations, such as a rolling reserve.

A rolling reserve gives the bank protection against losing funds due to chargebacks and refunds by requiring a certain amount to be held to cover these types of transactions. High-risk credit card processing may also apply that merchants that have high monthly sales volumes, in addition to businesses that have large average transaction rates.

That’s in contrast to businesses that have excellent credit histories and low chargeback or refund rates that are able to obtain a standard merchant account.

What Are the High-Risk Red Flags?

While different credit card processing services all have their own delineations as to what constitutes a high-risk business or industry, there are some shared qualities that can earn a high-risk credit card processing distinction. 

Sometimes, it has nothing to do with your business, per se, but it has everything to do with your industry. Industries such as travel, online gaming, gambling, antiques, debt collection, pharmaceuticals, credit repair, bail bonding, law firms, affiliate marketers, life coaches, consumer electronics and telemarketing are all frequently seen as high risk by credit card processors.

Additionally, if you sell expensive items or the items you sell are subject to legal scrutiny — or you have cyclical sales patterns or lots of recurring payments — you may also be seen as a high-risk business. 

Unfortunately, the distinction isn’t up to you; it’s up to the credit card processing service provider. That means whether you’re deemed to be operating in a high-risk industry or you’re a high-risk merchant, your credit card processor could flag you for higher fees and everything else.

Credit Card Processing for High-Risk Businesses

A high-risk designation doesn’t necessarily mean that you’ll have to jump through more hoops and pay more fees than normal. That’s because different credit card processors have different protocols when evaluating and dealing with high-risk businesses, and a high-risk designation with one processor can mean something wholly different from a high-risk designation from another. 

That said, high-risk credit card processing is commonly accompanied by higher rates and rolling and minimum reserve targets, as well as tiered pricing and possibly a liquidated damages clause. Fees such as setup fees, payment gateway fees and chargeback fees are typically all more expensive with high-risk credit card processing — and they might even decide to hold, say, 10% of your transactions over a three-month period before you can access the funds, also known as a rolling reserve.

Similar to a rolling reserve, a minimum reserve is a requirement that stipulates that you must keep a portion of your transactions as a maintained balance over time.

Working Under a High-Risk Designation

Sadly, a high-risk payment processing designation doesn’t leave you much room for recourse as it’s often due to things that are out of your control, such as the industry in which you operate or the goods and services that you sell. 

However, there are some things that you can do to reduce your risk and improve your credit card processing situation.

First, try to clearly communicate your return and refund policies with customers so that you aren’t getting as many refunds and returns in the first place. A simple disclaimer prior to any purchase or order can do wonders when it comes to your return rate, or you can also apply more scrutiny to your customers up front or more customer service after an order so that customers are aware of their options.

If all else fails, you can also focus on increasing your fraud prevention capabilities to help reduce chargebacks and returns. If you can keep your chargeback rate to less than 1%, you may be able to beat the high-risk designation.

Setting aside some capital is another way that you can signal reliability and an adherence to best practices when it comes to your credit card processing company. With lots of liquid cash on hand, you’ll be able to handle a drop or shortfall in revenue, as well as any chargebacks or returns. It’s kind of similar to a minimum reserve, but if you can manage it on your own you may be able to mitigate a high-risk designation.

Go With a High-Risk Credit Card Processing Company

Instead of playing the tightrope game with your payment processing provider, you could always go with a credit card processing company that specializes in high-risk businesses and industries. Here at Transcend Pay, we work with high-risk business and industries to give you all the payment processing capabilities — including mobile processing — that you need to make your business work. 
From processing payments to approving loans and getting instant funding, Transcend Pay is a financial partner that makes all the difference. Forget about high reserve requirements and unwieldy escrow fees — we can help you unlock greater profit margins and get ahead of your competitors. Learn more about our high risk credit card processing solutions.