Here’s Your Complete Guide for High-Risk Payment Processors

When you start a business, it is imperative to calculate the risk factors. Certain high-risk businesses are distinguished as being high risk because of several reasons. It might depend on the nature of the business industry, or your business is an entrepreneurial project. Or, it can also depend on you being the owner having a low credit score personally, among other reasons. 

If you think your business venture falls into the high-risk category, you will probably have difficulty finding a bank and a credit or debit card processor. Not all banks are willing to provide their services to high-risk businesses. If that’s the case, the best option for you will be to find the most suitable high-risk payment processors to get yourself a merchant account.

Read on to find out everything you need to know before taking that first step towards a successful business venture. 

What Makes a Business High Risk? 

For running a business, every merchant first needs to open a merchant account. All the banks and payment processing companies have their key distinctions based on which they classify a business as low risk or high risk, for example, an online retailer would be a low risk account compared to a lottery merchant account. When you approach a merchant account provider, being characterized as a high-risk merchant can significantly affect your business.

While establishing the risk factor in your business, certain lesser-known factors also come into play. These factors affect the procurement of credit card processing. 

Banks and processing companies look at the product or service you provide and its potential for fraud and chargebacks. They also consider factors like large transaction sizes, long-term deliveries, recurring subscriptions, trial offers, free offers, etc., leading to potential losses. 

Further, you can also give businesses the high-risk tag based on the poor credit score of the business or its owner. Selling controversial products or goods and services that are on the edge of being illegal will also classify a venture as high risk.

What is a Payment Processor?

Payment Gateways and Payment Processors are two crucial elements involved in card payment transactions. A Payment Gateway is a technical tool responsible for securely transmitting the encrypted data of a credit or debit card. It creates a safe connection between the payee and the business website. 

A payment processor is a company that handles the debit and credit card transactions for a business. There are two categories of payment processors. Firstly, the front-end processors. They maintain connections with the card networks and other payment services. They also control the merchant account on behalf of their client. Secondly, the back-end processors are responsible for the settlement of the transactions. They move the money from the customer’s bank to the merchant’s account. If you plan to accept payments through cards from your customers, it is mandatory to partner up with a payment processor. They are also typically responsible for providing the credit card machine and any other equipment that a business needs to collect payments.

The payment processor is also the switch that directs the transactions to various card brands. These platforms have different capabilities and are your merchant account and merchant service providers. One of their jobs is to make sure that the card networks and card issuers receive their fees from the merchant.

We understand that all these unfamiliar terms and processes can be confusing and daunting for new business owners seeking best payment processors. So, we will give you a clearer idea of what to expect.

By understanding the nature of your industry and knowing if your business is considered high risk, you can modify your hunt for a decent merchant service provider. That can help you avert the ruthless cycle of multiple applications, declines, and searching for new providers. 

Some Common High-Risk Industries

Specific industries are permanently certified as high risk. Any business that comes under any of these industries is labeled as being high risk by default. Some of these industries are:

• Adult Products
• Alcohol and Liquor
• Casinos
• Debt Collections
• E-Cigarettes and Vapes
• Fantasy Sports
• Marijuana
• Multi-Level Marketing
• Online Gaming
• Trials Offers and Free Offers
• Subscriptions

These are only a few examples of high-risk industries, among others. High-risk merchants have to committedly search for providers who are willing to provide services and have experience in the concerned high-risk industry. 

Getting Approval for a High-Risk Merchant Account

Once you finally choose a payment processor, you need to get approved for high-risk merchant services. For doing so, there are several requirements based on your business and industry type. You should build your knowledge about the approval process and follow some steps to find a quality merchant service provider. 

It is compulsory to conduct your research. Running a high-risk business and keeping its merchant account alive requires more hard work than any other type of business. You should understand well where your business stands on the high-risk ranking. Also, make sure to thoroughly research the service provider that you intend to approach and the extent of their experience in handling similar high-risk businesses. Going in with proper knowledge will help you protect your business from overpriced rates and wasted time in waiting for approvals.

Finding a suitable processor will significantly impact your high-risk business because of how the approval process works. When a company considers approval for a merchant account, the decision ultimately comes through their partnered bank. When you start your search for a service provider, you need to consider factors such as: who is their processing bank? Is that bank experienced in handling high-risk businesses from your industry type? What are the other requirements that you need to meet to get an account opened? How long does the approval process usually take? 

Another thing to keep in mind is, certain limitations and conditions generally accompany a high-risk merchant account. 

• Fixed Lower Processing Limits
• A Reserved Withheld on Transactions
• Limited Number of Processing Options or Gateways
• Comparatively Higher Processing Rates

These conditions should not come in the way of getting a merchant account. Instead, these points are to be used as crucial knowledge while deciding on the most suitable high-risk merchant account provider.

Conclusion

As a high-risk business owner, it is rewarding to research to find the best quality service, provider. A payments gateway, a payments processor, and a merchant account are three elements that work together to facilitate transactions between customers and merchants. As a customer or a business owner, it helps to understand the roles of the elements throughout a transaction process. Understanding all the different aspects of a high-risk merchant service provider will help you find the best processor, avoid long-awaited declines, and secure a long-term solution.