High Risk Payment Processing – What You Should Know!

The ability of a company to accept payments online – be it a credit or a debit card payment – defines an essential element of any e-commerce business entity. Unfortunately, digital online businesses operate with complicated business plans, which gives the woolies to the traditional standards set forth by the banking corporate structure.  Banks deem these types of businesses as high-risk for charge-backs or fraud.

The result: These businesses must choose from the following:

–        Continue to run their “high risk merchant” business paying above average processing fees or

–        Throw in the towel and liquidate the business

Fear not, however. High risk payment processing is available in the marketplace, but has been redesigned with guidelines that set forth distinctive challenges for the high-risk merchant. But, these specialized high riskpayment processing options have been created to specifically serve high-risk merchants.

What is a high-risk merchant?

It is a type of business model that is determined to carry higher-than-average payment processing risks. There are some industries that naturally fall into this high-risk category:

–        Adult memberships

–        High-volume businesses

–        Start-up companies

–        Multi-level marketing companies

–        Dating websites

–        Direct sellers, as well as

–        Social applications.

But be cautious because once a merchant is labeled as ‘high-risk’, it becomes increasingly difficult for them to find a traditional bank who will agree to set up a payment processing service plan.

If a high-risk merchant is able to create a rock-solid relationship with these traditional lenders, they then have a shot at reducing the requirements for:

Fees & Rates

Processing fees for high-risk businesses varies widely. The majority of banking entities who offer high-risk payment processing services typically sets their rates equal to the index Interchange plus 1.15 points to 4 points. This noted difference can take a large bite out of the merchant’s profit line.

Rolling Reserves

Rolling reserves is a financing technique (and underwriting requirement) that banks employ to lower the high-risk profile of businesses in need of merchant services. The rolling reserves withholds 5-10% of gross sales in a given time period. This allows the bank to hedge their bets with high-risk merchants.

Volume Caps

Many business models rely upon high sales volumes to generate the revenue needed to operate the business successfully. However, the maximum monthly limits of high-risk payment processing accounts typically range from $25,000 to $50,000. This can potentially limit a business’s size and their ability to grow.

The Take-Away

If you or your business has been labeled high-risk, seek an experienced merchant service provider that specializes in high-risk merchants and can tailor a processing plan to meet your needs.