Finding a High-Risk Payment Processor or Merchant Account

What is a Merchant Account?

Any business that operates by accepting credit card payments, which is almost all businesses these days, requires a merchant account. A merchant account is simply a corporate bank account that accepts payments from credit and debit cards. Every small business needs a merchant account to function and make sales and accepting credit card payments also means you need a credit card processor — the middleman between your company, the credit card issuers, and banks. Payment processing companies facilitate in the process of accepting payments from credit cards either by swiping the card physically or via online transactions. 

Understanding Chargebacks and High-Risk Merchants

The risk factor of a merchant account refers to the chances or likelihood of chargebacks occurring. When a customer issues a chargeback, the charge must be disputed and in most cases, the customer receives their money back, and the merchant account has debited that charge. On top of that, payment processing companies can then charge the business a chargeback fee, which can cost up to $100 depending on the company. 

So, chargebacks are bad news for small businesses and processing companies. A business with a high risk of chargebacks is categorized as a “high-risk merchant account”, a label that can lead to increased rates by payment processing companies, or even refusal of service or account termination. While this all sounds like bad news, there can be some benefits to being a high-risk merchant.

Low vs. High-Risk Merchant Accounts

Low risk is simply a term deemed to all businesses that are not considered high risk. These businesses have average to low chargeback risk and face the usual high consequences when a chargeback does occur. They are charged extra fees, have their rates increased, or are even terminated completely. Some common features of low-risk merchants include:

• Monthly sales volume under $20,000
• Average transaction less than $500
• Accept one type of currency
• Offer one-time purchases
• Located in a low-risk country, such as the US, Australia, or the EU
• Sell low-risk goods such as office supplies, clothing, etc.
• Do not have a history of frequent chargebacks

So low-risk merchants tend to be smaller businesses that operate via simple and safe transactions. However, not all businesses have the luxury of meeting all of these standards. Expanding operations to other locations and increasing monthly revenue are common goals of almost every business. Becoming a high risk is often just a part of the process. Some factors that can lead to business being categorized as high risk include:

• Monthly sales volume above $20,000
• The average transaction of more than $500
• Accept multiple forms of currency
• Offer subscriptions or recurring payments
• Located in a high-risk country or operate globally
• Sell high-risk goods such as digital software, adult products, etc.
• Have a history of excessive chargebacks

Of course, these lists are not a hard and fast rule. Each payment processor decides which businesses they will consider high risk and adjust their rates accordingly. There are a number of industries that are typically known to have a high chargeback risk, and therefore may automatically be considered high-risk merchants. These can include:

• Attorneys and bail bonds
• Adult entertainment
• Casinos and gambling
• Credit repair or debt reduction services
• Dating services
• Gaming or digital software
• Online pharmaceuticals and drug providers
• Subscriptions
• Telemarketing and calling cards
• Travel and ticketing agents

Consequences of Being High Risk

As a high-risk merchant, your options for payment processing become much more limited. High-risk merchants generally deal with a number of obstacles and challenges.

Excessive Terms and Fees: Most merchant account providers are not equipped or do not prefer to work with high-risk merchants, and therefore will charge excessive fees for chargebacks or offer strict contracts. Some companies will refuse service to some high-risk merchants.

Predatory Processors: There are a number of scammers waiting to take advantage of high-risk businesses that are desperate for a processing company. They claim to protect your business at ridiculously expensive rates tied to complex and unfair contract agreements. Always be cautious of these situations, and if a provider is withholding information prior to a contract signature, they probably are hiding unethical practices and overpriced services.

High Risk Reserves: Many high-risk merchants end up using reserves, which protect the processing company from chargebacks. Reserves typically fall into three categories: up-front, rolling, and fixed. Up-front reserves allow the processor to withhold all funds from a transaction until a reserve balance is met. Rolling reserves allow the processor to hold a percentage of daily revenue for a limited time. Fixed reserves are similar to rolling reserves, but propose a cap or limit of funds that can be withheld. If a chargeback occurs in these situations, the withheld funds may not be returned to the business.

What if I am a High-Risk Merchant?

The most important strategy for a secure and successful business as a high-risk merchant is choosing the right payment processing company. A processor that specializes in high-risk merchant accounts, such as DoubleHelix, is prepared to handle chargebacks effectively and protect your business in those instances. Having a proper processing company can actually bring a number of benefits to a high-risk merchant:

• Limited chargeback penalties: There is less risk of an account being terminated for excessive chargebacks.
• Reduced chargeback fees: Companies that specialize in high-risk businesses will not charge outrageous or excessive fees when chargebacks occur. 
• Chargeback protection: Processors can offer high-security payment systems and fast, skillful action to protect the merchant account when a chargeback occurs.

The most important quality of a processing company specializing in high-risk merchant accounts is customer service. You want a friendly and personal company that keeps you informed and works with you to determine the individual needs of your business. They should be able to offer a variety of services and payment options to maximize business operations and fit your needs. Additionally, all costs, rates, and fees should be extremely clear and upfront and payment plans should be negotiable during the construction of your contract.

With the right processing company, payment processing can be an asset to your business and merchant account security, rather than a challenge. At DoubleHelix, we have your back.