How to Navigate Credit Card Processing as a High-Risk Merchant

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“Cash only” is so three decades ago. If you’re going to be running a business in 2018, you need to provide your customers with the option to pay by credit or debit card — no ifs, ands, or buts. If you’re an online business, you can probably get away with having PayPal as your sole option, but as your sales grow you’re going to need to upgrade to provide more payment options.

With that said, not all businesses are treated equally. Businesses are treated differently based on the perceived level of risk they present for the credit card processor. While high-risk credit card processing comes with its share of challenges, it doesn’t have to mean the end of your business.

Here are a few important things to keep in mind while navigating credit card processing as a high-risk merchant.

  1. The processor determines whether you’re high-risk.

When you apply for a merchant account your processor will determine whether you fall into one of their high-risk business categories. Unfortunately, there’s no negotiating here. What qualifies as high-risk varies based on the processor. For example, some processors will deem pornography or drug-related paraphernalia as high-risk merchants, whereas others may have different criteria. If you’re not sure if your business qualifies as high-risk, reach out to the processor for more info before you apply.

  1. How your high-risk business is treated depends on the processor.

How a high-risk merchant is treated also varies based on the processor. Some processing companies simply won’t accept high-risk merchants at all, whereas others may just charge you higher than normal fees. There’s also a third branch of companies that specialize in high-risk credit card processing. Do your research and find what a processor’s high-risk criteria are before you waste time applying to a processor that will likely reject you.

  1. Understand why you might be considered a high-risk merchant in the first place.

While criteria vary slightly depending on the processor; high chargeback or fraud rates, offshore businesses, products with questionable legality (for example, pornography), questionable sales or marketing practices (i.e. if your business appears as a potential scam), bad personal credit or a high-average ticket sale (for example, if you’re routinely selling big-ticket items) are all considered factors when considering whether a merchant is high-risk.

  1. High-risk merchants typically pay more in fees and have to sign longer contracts.

When it comes to contracts, the industry average for non-high-risk merchants is usually around 3 years with some room for negotiation. However, as a high-risk merchant, you’re going to typically be stuck in longer contracts from 3-5 years with very little wiggle room due to your high-risk status. Your contract may even include an early termination fee and a liquidated damages clause if you decide to get out of the contract before the end of its term. Add in the higher processing fees you pay and being a high-risk merchant will cost you more overall.

  1. Beware of predatory high-risk credit card processing companies.

Yes, you should expect to pay higher fees as a high-risk merchant, however, be aware that there are also businesses out there that are looking to take advantage of your situation. Check out their website. Is it modern and looks like it’s been updated recently? Read what other customers have to say about them online. Is the feedback positive? Before you sign on with a high-risk credit card processing company make sure you read the contract carefully — including all the fine print — to avoid any hidden fees or clauses that could be detrimental to your business.

Posted on Tuesday, October 9th, 2018