Understanding High Risk Processing Payments Processors

Industries are not created equal. Some pose more significant risks, while others don’t. If your business belongs to the former, you should consider working with a high-risk payment processor. They are the ultimate financial partners of high-risk industries — they guard your transactions, data, and funds to ensure your profits land in your banks safe and clean.

If you’re new to high-risk processing, here is a comprehensive guide on understanding high-risk processing payment processors and how to choose your high-risk processing partner confidently.

Key Takeaways

• Choosing a high-risk payment processor is crucial for businesses facing greater chargeback, fraud, returns, or other financial risks. High-risk industries like online gaming, eCommerce businesses, and travel services need specialized accounts.
• Due to the increased risk of fraud and chargebacks, high-risk merchant accounts come with higher fees and strict rules. A business must maintain healthy cash levels and work hard to reduce chargebacks.
• A good payment processor helps manage these risks with fraud protection and chargeback management tools. When selecting one, look at its experience in your industry, how well it handles legal compliance, and whether it offers transparent fee structures.

An Overview of High Risk Payment Processing

Grasping high-risk payment processing is vital to understanding why some businesses face more considerable payment challenges. Learning about high-risk industries will help you stay ahead and keep your businesses safe and secure. 

What Makes a Business High Risk?

A business can be labeled as high risk for several reasons. High chargeback ratios, fraudulent tendencies, or financial instability make payment processors wary. Selling internationally or offering subscription services also adds to the risk.

To identify high-risk businesses, payment processors examine their nature. They look into industry type, credit history, processing history, and whether the business is new. They also check how much it relies on international sales and whether its products are legal. These factors can affect approval rates and the security measures needed to protect transactions.

Businesses classified as high-risk might struggle to get approval from standard payment processors and even see their accounts suddenly shut down. But with high-risk payment processing, you and your business can focus on operating smoothly and worry-free.

Industries and Businesses Classified as “High Risk”

Knowing what makes a business high-risk helps identify which industries often fit this classification. eCommerce and nutraceuticals are prime examples of sectors considered high-risk.

Due to their nature, these areas face strict industry regulations and significant risk management challenges. For instance, eCommerce involves high chargeback rates, while nutraceuticals deal with products that claim health benefits that might lead to potential liability issues.

Other high-risk businesses are telemarketing, pharmaceuticals, travel agencies, online and social gaming, and digital goods and services. Each carries unique risks due to high chargeback rates, fraud potential, or regulatory compliance demands.

Payment processors working with these high-risk industries must have specialized knowledge and tools to manage these challenges effectively and keep the business on track.

The Risks in High Risk Processing

In high-risk payment processing, merchants often face hefty fees and must keep funds in reserve. These challenges arise from high chargebacks, unstable business operations, or poor credit scores. Such issues strain the merchants’ financial health, making maintaining a steady cash flow hard.

On the other hand, high-risk payment processors handle complex operations. To sustain their partnerships, they must juggle various payment methods while managing relationships with merchants, issuers, and card networks.

In addition, payment processors risk potential revenue losses due to merchant chargebacks and fraudulent transactions. The diversity and intricacy of payments demand vigilant fraud protection measures alongside strict compliance with industry regulations.

Both parties must work hard through a landscape filled with financial uncertainties and regulatory demands. This entails finding a trustworthy, high-risk payment processor that will help keep your business afloat.

What to Look for in a High Risk Payment Processor

High-risk payment processing is tricky. As a merchant, you must partner with an expert high-risk payment processor to ensure the safety of your business. With a dependable payment processor, your business can continue operating smoothly while also avoiding the pitfalls that can hurt your finances and public image.

Below are qualities you should note when looking for a high-risk payment processor to work with.

Key Factors in Picking a High Risk Payment Processor

To find a reliable and experienced high-risk payment processor, make sure that they are experienced in high risk processing by checking the following:

• Utilizes advanced fraud detection and protection tools.
• Has strong chargeback management strategies and meets industry rules.
• Employs AI algorithms to assist in real-time data monitoring.
• Follows PCI-DSS standards to maintain the safety and legality of payment processing.

Underwriting and High Risk Payment Processing

Underwriting for high-risk processing is similar to applying for a loan: banks examine the business type, principal owner’s background, business model, and processing history before approving high-risk accounts. This step is essential because it helps assess the risk level of doing business with high-risk merchants.

Businesses considered high-risk might find this challenging since bank criteria can vary widely. Factors such as industry and personal credit history can heavily impact the bank’s approval.

The Payment Process for High Risk Merchants

The payment process for high-risk merchants like you is a bit more complex. It involves several steps and different players, making it unique from regular processing. The extra measures are there to ensure that your business is in safe hands.

The Payment Process

High-risk processing has four stages: initiation, authorization, settlement, and funding. Here is an overview of what happens at each level and what you can expect.

• Initiation: This is where the payment process starts. Customers will use their cards to buy something from your business and initiate the transaction.
• Authorization: Here, the bank will decide whether to accept the customer’s payment. If the answer is yes, the process moves to the next level.
• Settlement: The transaction will be processed once the bank has agreed to the payment method.
• Funding: This is the final stage of the payment process where you receive the payment from your customer.

It’s a straightforward process, but a lot of measures are taken by high risk payment processors to ensure smooth fund transfer while mitigating risks at the same time.

The Parties Involved in the Payment Process

Four key players make the high-risk payment process work. First, merchants are businesses that sell goods or services and accept payments. Since they need a way to get paid, payment processors exist to handle their transactions and ensure everything runs smoothly. Payment processors also manage risks and secure the merchant’s data to avoid fraudulent attacks.

Then we have acquiring banks. They are responsible for providing merchant accounts that let businesses accept credit card payments. On the other side are issuing banks, which give consumers credit cards and decide if a transaction can go through when someone tries to buy something.

Each party plays a vital role in every purchase, ensuring shoppers can safely buy what they want and sellers get paid for their products or services.

Timelines in High Risk Processing

High-risk processing doesn’t always move quickly. Delays can happen, and merchants might need to wait longer, especially when they have yet to find a good high-risk processor among the few options for high-risk businesses.

Once a merchant finds a processor, the underwriting process can take time. Every step—from checking out the merchant’s business to starting actual payment processing—takes extra care.

This meticulousness helps manage risks but also adds time before everything runs smoothly. Working with experts like specialized high-risk service providers can make these steps easier and quicker, but patience is still key to getting set up with high-risk processing.

Understanding Fees in High Risk Payment Processing

High-risk merchants face several fees that can affect their bottom line. Here are the fees that you need to prepare for when engaging in high-risk payment processing:

• Transaction Fees: These are common, with rates varying depending on the business’s risk level. They are part of every transaction between the merchant and the processor.
• Chargeback Fees: This fee applies when customers dispute transactions, costing merchants more in fees and lost revenue.
• Rolling Reserves: Another cost to consider is rolling reserves, where a portion of monthly sales, a percentage set by the processor, is held back to cover potential chargebacks or disputes.
• Payment Gateway Fee: This fee is essential for online merchants to process credit card payments securely.

Knowing what you pay for is crucial, especially with high-risk processors where fees tend to be higher. Understanding these costs helps protect your bottom line and avoid surprises. When all numbers are presented, decision-making becomes more manageable.

Choosing providers that share full details upfront can prevent future headaches and flag potential account shutdown risks early on. Being well-informed in a partnership where every cent counts can lead to long-term benefits between merchants and processors.

Before committing to a high-risk processor, always ask for clarity on transaction fees, chargeback fees, and rolling reserves.

Areto Payment as Your High Risk Processor

Areto Payment stands out as a reliable partner for businesses navigating high-risk processing. Specializing in industries like online gaming, travel services, online retail, eCommerce, and digital goods, we offer a proven track record in managing these challenging areas.

At Areto Payment, we help high-risk merchants secure competitive rates and approvals with advanced fraud detection systems and strict compliance support. Our tailored solutions meet the unique needs of each vertical, effectively managing chargebacks and friendly fraud.

With comprehensive service offerings, Areto Payment is more than just a processor but a growth partner for high-risk merchants. Our chargeback mediation and friendly fraud protection services are designed to quickly identify risky transactions before they escalate, safeguarding the merchant’s bottom line and maintaining stable processing capabilities.

Conclusion

Engaging in high-risk payment processing requires careful consideration. Not all processors are identical; some may impose high fees and strict contracts. It’s crucial to be vigilant and wise about selecting a trustworthy high-risk payment processor.

Choosing Areto Payment can be a smart move for businesses facing high-risk processing challenges. With a specialized approach to handling transactions in high-risk industries, Areto Payment supports merchants across various sectors, ensuring access to payment solutions for POS, mobile, and online checkout options. This makes it easier to manage transactions regardless of how customers choose to pay.

Process with Areto Payment today to keep your transactions safe and secure!

FAQs:

1. What is a high-risk processing payment processor?

It’s a payment processing company dedicated to helping high-risk businesses have an efficient and protected payment system.

2. Can any business use a high-risk payment processor?

Yes, but high-risk payment processors are usually meant for businesses that are tagged as “high risk”—those with a higher chance of fraudulent issues, high chargeback rates, and financial instability.

3. Are the fees higher for high-risk processors?

Yes. High-risk payment processors are involved with more risks, which require complicated tools, complex knowledge, and cutting-edge technology to protect transactions.

References

Areto Payment. High Risk Payment Processing Archives – ARETO.; 2016. https://www.aretopayment.com/tag/high-risk-payment-processing/.

Woodward C. What is a high risk merchant? How to tell if a payment processor will see your business as high risk and what you can do about it. National Processing. https://nationalprocessing.com/blog/what-is-a-high-risk-merchant-how-to-tell-if-a-payment-processor-will-see-your-business-as-high-risk-and-what-you-can-do-about-it/.

Paycron I. Managing High-Risk Payment Processors — Strategies for Success! https://www.linkedin.com/pulse/managing-high-risk-payment-processors-strategies-success-m6uie. Published February 27, 2024.