High-risk credit card processing doesn't have to be complicated. Here's what you need to know, and what to look for in a processor.
If you’re considered “high risk” in terms of credit card processing, it’s not necessarily a reflection on you or your personal credit. Rather, some business-types are considered high risk no matter what, because of factors such as higher rates of chargebacks or likelihood of fraud.
While it’s true that your personal credit may play a role in getting processing if you’re newly opening a business, there are many factors beyond credit that determine if your business is “high-risk.” In any case, don’t take it personally; instead, read on to learn what you need to do to accept cards securely even if you operate in a high-risk industry.
Which industries are considered “high-risk”
Processors can choose which industries they won’t support at their discretion, but as a general rule, high-risk industries include businesses in travel services, telemarketing, debt consolidation, collection agencies, gambling, adult entertainment, tobacco, pharmaceuticals, and firearms.
Some processors maintain lists of business types prohibited by their terms of service on their websites, but if not, you can always ask directly.
If you run a business within those categories, your best bet is to look for a processor that specifically accommodates your industry. Fortunately, high-risk processors often identify themselves as such, making it easy for you to find one that can work with you.
Mitigating risk – restrictions to expect
In order to mitigate their risk in processing transactions on your behalf, processors may impose requirements on your account in order to allow you to take cards. Two of the most common are ACH delays and rolling reserves. An ACH delay is a temporary hold on your funds before they’re deposited into your bank account, while a rolling reserve means that your processor will hold onto a percentage of your sales for a longer period of time, typically starting at 180 days. Both the percentage of sales and the time period of the hold should be disclosed in your processing agreement.
A processor may impose ACH delays even on accounts that are not high risk; they are the more common of the two restrictions. Rolling reserves, the stricter requirement, are more often seen on high-risk accounts, especially those prone to chargebacks. In either case, the processor will disclose the terms of the restriction, so be sure to read any contracts and ask if you have questions.
These stipulations still allow you to accept cards but provide the processor with a level of security for handling the transactions for you. They may seem restrictive, but if the choice is to agree to an ACH delay/rolling reserve or not take credit cards, the answer may be to agree and figure out how to work around it. However, you’ll need to make that decision based on your particular business needs and whether credit card use is a necessity for your customers.
Don’t fudge the details
It can be tempting to leave out key information when signing up for credit card processing if you know that processors consider your business high-risk. Some people might try to fudge it details so it looks like their business is a different service or a general retail store. However, processors often catch such deception and close the business’s processing account.
This is a particularly common situation with flat rate “aggregators” – companies like Square, PayPal, and Stripe, which require little upfront verification to start processing. The internet is full of horror stories from businesses getting shut down “with no warning” after processing for a while. Unfortunately, in many cases, the business was doing something against the terms of the agreement, such as operating a business in a prohibited industry.
Bottom line, it’s not a good idea to misrepresent your business as something that it’s not. If your business type is on a processor’s list of prohibited businesses, save yourself a headache and don’t try to sneak it by them. Instead, find a high-risk processor that can serve you. There are processors for all the high-risk categories. If it’s legal, a processor somewhere supports it.
Choosing a high-risk processor
The bad news is that high-risk processing is more expensive and has fewer options than processing for a non-high-risk business. The good news is that you can still keep your costs down by choosing a reputable processor, working to limit your chargebacks, and making sure you build the cost of processing into your goods or services.
When choosing a high-risk processor, look for established companies, preferably based in the same country where you’ll be conducting business. It will be easier for you to deal with disputes and work with your processor if you aren’t dealing with international differences.
Don’t be afraid to check in with other businesses that operate in high-risk industries to ask who they use, but remember that processors set pricing and terms differently for each business. If you do ask other businesses, use their recommendations as a starting point for your research rather than an endorsement to accept blindly.
Speak with processors directly, ask questions on anything you don’t understand, and be upfront about your business and you’ll find a processor that can enable you to take credit cards even in “high-risk” industries.
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