Credit card processing is a high-risk business. Processors have to deal with merchants whose services are consistently disputed and result in chargebacks. They also work with some industries considered high risks, in which processors must regularly tangle with dwindling business revenue and even complete shutdowns.
What is a high-risk merchant account?
High-risk merchant accounts are those held by businesses with an extensive history of refunds and chargebacks. If your business poses a higher risk of liability to financial institutions, you'll pay higher fees for services, and you may also be subject to a rolling reserve. The rolling reserve provides protection to the bank in case of excessive chargebacks and refund incidences.
Companies with pristine credit histories that sell products and services with low chargeback and refund rates often qualify for standard merchant accounts.
What makes a business or industry high risk?
To mitigate the risks in credit card processing, companies have developed classifications for high-risk merchants. Here's an overview of what may land you in the high-risk credit card processing category as opposed to the low-risk one:
|High risk||Low risk|
|$20,000 or more in monthly transactions||Less than $20,000 in monthly sales|
|Average transaction of $500 or more||Average transaction of less than $500|
|High-risk industry (forex, gambling, travel)||Low-risk industry (clothing, home goods, books)|
|Excessive chargebacks and disputes||Low chargeback ratio (less than 0.9% of total transactions)|
|Accepts multiple currencies as payment||Only accepts one currency as payment|
|Offers recurring payment options (subscriptions)||Conducts single transactions only (no subscriptions)|
|Conducts business internationally||Conducts business only in the U.S.|
While the above table serves as a guide, whether your business is categorized as high risk or low risk is ultimately at the discretion of the credit card processing company.
If you are a merchant who conducts business in a high-risk industry, such as foreign exchange or gambling, there are ways to mitigate the cost of running such a business:
- Choose a credit card processing company that will only charge you for transactions conducted on your website or app.
- Apply for a high-risk merchant account with a credit card processor that has worked with other businesses in your industry.
Pros and cons of high-risk merchant accounts
If you're a high-risk merchant, the biggest challenge you'll face is higher fees and rates. Shop around to find the credit card processor that works best for you, and remember the advantages of working in a high-risk industry:
- Opportunity to expand your market. As a high-risk merchant, you can conduct business with clients in high-risk countries, which means you'll reach more customers than low-risk merchants can.
- High profit margins. In addition to a larger market, you have the option to sell a broader range of products than low-risk merchants do, which means more money for your business.
- Chargeback protection. When a low-risk merchant exceeds the designated chargeback threshold, the credit card processor may terminate their account. In the case of a high-risk account, the credit card processor will likely only pause the merchant's credit card transactions.
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Many merchants aim to stay in the low-risk category. But don't let the possibility of being considered a high-risk business stop you from entering an industry that could bring in a profit large enough to be worth the extra rules.
What is the best high-risk credit card processing provider?
Here's a quick look at some of the best credit card processors.
Flagship Merchant Services
In our Flagship Merchant Services review, we recommend this full-service credit card processor because it offers its services to all customers on a month-to-month basis and doesn't charge a cancellation fee. By contrast, standard credit card processing contracts have lengthy three-year terms with a short cancellation window of 30 to 90 days before automatically renewing for an additional one- or two-year term. They also have early termination fees to discourage you from exiting your contract before it expires; some even have liquidated damages clauses that make it expensive to cancel.
Additionally, Flagship offers a choice of interchange-plus or tiered rates, allowing you to select the better pricing model for your business. If you're already processing credit cards, Flagship will negotiate with you to see if it can meet or beat your current pricing. It charges a monthly fee, a monthly payment gateway fee, a monthly minimum and an annual PCI compliance fee. It doesn't charge application, setup or payment gateway setup fees.
Our review of Helcim found that it's transparent with its pricing, listing complete rates and fees online. This full-service account provider offers interchange-plus pricing to all its merchants, and its retail rates are lower than average. It also has a rate-lock guarantee, which means it promises not to raise its markup for the life of your account.
Instead of charging a handful of standard fees like most full-service processors, Helcim charges a single monthly fee, which includes statements, customer service, PCI compliance and access to Helcim Commerce, the company's all-in-one payment platform. Like many other top processors, Helcim provides its services on a month-to-month basis, so there are no early termination fees if you close your account.
Our Square review revealed that the only charge for its basic processing service is a flat rate for each transaction. There are no monthly, gateway, setup, annual, PCI compliance or early termination fees. It doesn't even have a chargeback fee, which is unusual. Square's lack of fees makes it an affordable option for small businesses that don't process enough transactions to justify paying regular account fees.
Square also has the best mobile credit card processing app. You can not only accept payments on it, but also use Square's full-featured POS software to track inventory, manage customer information, and run sales reports. The app is free to use – all you pay for is processing. It works on both Apple and Android phones and tablets, and you can add more business features by subscribing to paid services like payroll and email marketing, or by integrating with third-party applications you already use, such as accounting software.
Our Fiserv review indicates that this processor can negotiate competitive pricing and favorable terms. Formerly known as First Data, Fiserv is one of the world's largest payment processors. It offers Clover processing equipment and veteran perks, and it allows merchants to accept Alipay, a popular Chinese payment app.
The company provides a full range of processing solutions, so you can accept payments every way your customers want to pay: in store, online, on the go and over the phone. You can accept every type of payment: magnetic stripe and chip credit and debit cards, mobile wallets like Apple Pay and Google Pay, paper checks, ACH transfers, and gift cards. Fiserv allows you to offer loyalty rewards to your regular customers as well.
In our PayPal review, we found that anyone can sign up for an account, making it ideal for freelancers, solopreneurs, startups, and businesses that typically accept cash or checks and only rarely accept credit card payments. It has flat rates, with no monthly processing minimum or lengthy contracts, and you only pay for the processing you use. You can accept credit, debit, and PayPal payments from customers online and in person.
It's also the best Android mobile credit card processor. Its mobile payment app, PayPal Zettle, works equally well on Android and Apple phones and tablets, and both versions have the same features. With this app and a card reader, you can use your phone or tablet to accept payments, manage your product list, send receipts by email or text, and generate sales reports. You can add multiple users to your account and control what features they can access. You can also transfer money from your PayPal balance to your PayPal Business Debit Mastercard or your bank account.
In our Fattmerchant review, we discovered that it uses the interchange-plus pricing model but doesn't charge a markup percentage. It only adds a per-transaction fee to the published interchange fee – the rate set by the credit card companies (Visa, Mastercard, Discover and American Express) that everyone pays.
For account fees, it charges a single monthly membership, or subscription, fee. There are no separate fees for statements, PCI compliance, customer support or account maintenance. Though the monthly membership fee is higher than what some of its competitors charge, its processing limits are less restrictive. The company notes that businesses need to process at least $7,000 per month for this to be a cost-effective processing solution. Small businesses that process a high volume of transactions each month will see the most savings on their overall costs.
In our review of Stripe, we found that it's very versatile. Its integrations, prebuilt forms, UI elements and built-in payment gateway make it easy for even very small businesses to use, and its APIs allow larger businesses to create custom checkout forms and payment flows. There's no extra charge for its integrations, forms and developer tools; for its basic payment services, all you pay are transaction fees.
As we announced last November, Stripe has partnered with WordPress.com to make it easy for the platform's users to sign up for Stripe, and add its recurring payment buttons to their WordPress- and Jetpack-powered sites. WordPress says there are just three steps to set it up, and it doesn't require any technical know-how. Using Stripe, WordPress users can offer different subscription tiers and frequencies to their audience, which could be used to offer exclusive content through site memberships or ongoing subscriptions, or simply to accept recurring donations.
What is credit card processing?
Credit card processing is the way by which businesses accept debit and credit card payments from customers. Generally, this involves the use of both point-of-sale (POS) hardware and software in conjunction with a credit card processing company's payment networks. Credit card processing service providers often charge a certain percentage of each sale as well as a per-transaction fee, depending on the type of transaction.
Many processors provide the option to set up payment gateways for accepting debit and credit cards online. However, accepting payments when the physical credit card is not present, either through a gateway or over the phone, often incurs a higher rate due to the increased risk.
Risk, in general, is a key consideration in the credit card processing industry. In some cases, certain businesses or entire industries are deemed high risk, which carries higher rates, more fees, and more terms and conditions than the credit card processor's other clients.
Adam Uzialko contributed to the writing and reporting in this article.