How High-Risk Payment Processing Works


March 30, 2021

The payment processing business is rife with risks. For a payment processor to accept to work with a specific merchant, they need to ensure that they can take on the risks that come with the business. Oftentimes, businesses that have high chargeback rates, volatile revenue streams, or high fraud rates can be risky to work with. There are entire industries that come with inherent risks that surpass most payment processors’ risk tolerance.

Accepting credit card payments is a necessity in today’s age. If your business can’t accept card payments, you could be losing a lot of customers to the competition. Since credit card processors understand this, they still offer services to businesses that are considered high-risk, but at a higher price, which is meant to mitigate the risks that come with high-risk payment processing.

If you are a high-risk merchant, understanding how this all works could help you make the right decision when choosing high-risk credit card processing companies. Different merchants will offer their services at different price points. Others will offer additional services that help you control the risk of fraud and chargebacks.

How High Risk Payment Processing works - Infographic

Who is Considered a High-Risk Merchant?

The decision of whether to label a business high-risk is often left to the discretion of the payment processor. Different processors will have different risk appetites and criteria for assessing a merchant. In fact, every time you apply for a merchant account, payment processors will typically assess the inherent risks that come with doing business with you. They can then decide whether working with you under normal terms is worth it or not.

However, there are also some formal standards for terming businesses as high-risk. Payment processors will typically look into your processing history, revenue stream risks, chargeback ratios, average transaction rates, and monthly sales volumes. Merchants who have had their accounts frozen or terminated are almost always considered high-risk, as are merchants that have a chargeback ratio higher than 1%.

Some industries are considered high-risk altogether. If your business is in one of these industries, you’ll likely need to work with high-risk payment processing companies by default:

  • Gambling
  • Travel
  • Antiquities
  • Dating
  • Nutraceuticals
  • Credit repair
  • Affiliate marketers
  • Life coaching
  • Telemarketing
  • Adult entertainment
  • Kratom

Credit Card Processing is Expensive for High-Risk Merchants

Person buying something online with their credit card

While most high-risk credit card processing companies maintain the same list of high-risk merchants and industries, their treatment of them differs. Regardless, it will cost you more to get your payments processed than it would if you were a low-risk merchant. You can expect:

  • Extra fees – you could have to pay extra fees for typical services like setup, chargebacks, and payment gateway usage. This is meant to offset the risk that comes with offering your high-risk business payment processing.
  • Rolling reserve – a portion of your transactions will be held by the payment processor to be released later. It acts as a cushion for the processor in case your industry faces a major disruption or your business fails. Most will hold on to the rolling reserves for 90 days.
  • Minimum reserve – this is a minimum amount of cash your processor will require you to maintain as a balance. It can help offset common issues like chargebacks.

Choosing the Ideal Payment Processor

The best processor for your company will depend on your specific situation. For instance, if you are labeled a high-risk merchant due to a poor credit score, it’s still possible for you to get a great deal, you’ll just need to start by looking for high-risk payment processing companies that work in your industry and country of business. They will understand the intricacies of your situation and can offer tailored services. Other factors to consider include:

  • Customer support – you’ll want to work with processors that are always available. Issues like downtime can often affect your revenue-generation capabilities – they need to be resolved fast.
  • Technological advancement – payment processors that use legacy equipment will set you up for failure. You ought to look for processors who understand the kind of tools needed for your success, like providers who offer fraud and chargeback prevention tools.
  • Compliance with common regulations – you’ll want to work with a high-risk payment processing company that complies with regulations like the PCI DSS. This reduces your chances of fighting a data breach and its aftermath.
  • Flexibility and customization – look for payment processors who can offer you services tailored for your business. Some situations will call for a customized pricing approach.
  • Reviews – search for online reviews and references to learn more about your specific payment processor. The better you can understand them, the easier it will be to decide on whether they are the best processor to work with.

Mitigate Risks to Reduce Payment Processing Costs

High-risk credit card processing companies will charge you according to your level of risk. This means that mitigating risks will help you get high-risk payment processing at a lower cost. Be sure to communicate effectively with clients, minimize chargeback rates, and have fluid cash reserves to offset common issues.