High Risk Payment Processing Options and Best Practices
Our attorneys are industry leaders in high-risk merchant accounts who can resolve reserve account issues with your processor.
Merchants in the high-risk category should be prepared to pay additional fees and face scrutiny from payment processors. However, before agreeing to work with a processor that specializes in high-risk accounts, you should have a legal expert you can trust to thoroughly evaluate and negotiate your contract. Because the electronic payments industry is continually evolving, you need the assistance of a payments attorney with expertise in litigation with the knowledge and experience to address all your business needs.
At Global Legal Law Firm, our attorneys are experts in matters involving electronic payments. We represent merchants, affiliates, marketers, ISOs, processors, and financial institutions. In this article, we’ll cover high-risk payment processing and how our lawyers can help you protect your business.
Guidance for High-Risk Merchants
Identification of High-Risk Merchants
Processors classify certain merchants as high-risk based on certain issues or occurrences, industries, products, and sectors, most commonly because of a potential for a high volume of chargebacks or a susceptibility to fraud. Other issues may include accepting foreign currency, fraud, or a poor credit card processing history. Once classified as a high-risk merchant account, it may be difficult to find a processor or process credit card payments. Those who accept you generally require high reserve fund accounts.
Reserve Funds
High-risk businesses may be required to post funds upfront in a reserve account. Or the processor may hold back a portion of the merchants funds to collect a “rolling reserve.” The agreements will typically state that the processor “will” release funds at the 180-day mark. But many agreements state that the processor can hold those funds “until the liability expires,” which arguably could be forever. And many payment processors use this excuse to hold reserve funds. Some processors will also exercise the right to offset for risk or damages, like an early termination fee. The early termination fee can sometimes be over $1,000,000. While your payment processor can use these funds as insulation against unforeseen losses like fraud claims or excessive chargebacks, the Card Brand Rules require a “reasonableness” standard.
These terms, however, are negotiable between you and the ISO/processor/bank. And having experienced payments attorneys in your corner provides additional assurances to the ISO/processor/bank that your business will comply with the Card Brand and their best practices.
MATCH List
The Member Alert to Control High-Risk Merchants or MATCH list indicates that a business has engaged in poor practices and, as a result, had its payment processing revoked. Activities that can land a merchant on the MATCH list include fraudulent activity and transaction laundering. Getting off this list is not easy and requires the help of a legal expert with experience getting people off MATCH. Additionally, if you’ve been placed on the MATCH List and need to get processing now, we can help you.
Getting your business back on track may require legal assistance, and our lawyers understand the complex nature of electronic payment ligation. The experts at Global Legal are well-versed in the complex standards processors hold and can assist you in regaining control of your business.
Why Law Advice and Counseling Is Valuable
Seemingly small business problems can grow into more complex legal issues. Hiring a lawyer who takes a business-first approach and provides you with invaluable advice can help you minimize risk. Our attorneys can ensure your business starts on the right foot by drafting all necessary documents, providing sound advice, and helping you avoid legal pitfalls.
With the advice of a knowledgeable lawyer on your side, you can structure your business such that it remains compliant with the myriad of regulations that govern business activities. Another example of how our attorneys can help protect your business’s best interest is drafting and providing opinion letters. Banks accept opinion letters from expert payment attorneys to certify the legitimacy of a business. Get expert guidance from Global Legal’s attorneys, who understand the vast and widely unknown payment space. We stay on the cutting edge of policy and practice and can help you fully understand your legal risks and benefits.
Addressing Reserve Account Issues
Our merchant legal services expert attorneys are well-versed in reserve accounts. Addressing issues with your reserve account can help reduce or eliminate the need for a reserve account in some cases. In other cases, our attorneys will take a business-first approach to help you determine how to optimally conduct your business while maintaining a reserve account. If you are required to have a reserve account, communicate with your processor to get specifics. Ensure you maintain thorough payment records, ideally for nine months, to protect yourself in the event of chargebacks.
Opinion Letter
Global Legal can provide an opinion and analysis of your businesses’ compliance with Card Brand Rules and bank/ISO/processor regulations. This may allow you to obtain more favorable terms related to the reserve, pricing, and other matters.
Global Legal Law Firm is Your Expert in High-Risk Merchant Accounts
Global Legal has successfully helped many clients get their reserve accounts returned as well as navigate the process of maintaining a reserve account. Our attorneys will help you protect your business by ensuring that even high-risk merchants are not subject to overly burdensome reserve accounts. We are industry leaders in providing legal services to the electronic payment processing industry, so you can feel confident that you will receive knowledgeable and tailored advice.
Reserve Funds FAQ
Due to the pandemic and subsequent lockdown, a dramatic shift toward the use of gaming and gambling apps took place, as consumers in significant numbers utilized betting apps and online casinos to stave off the boredom brought on by the isolation from family and friends. In addition, consumers flocked in record numbers to online stock trading apps such as Robinhood, which saw an increase of over six million users in just sixty days during January and February of 2021.
Gambling and stock trading merchants qualify as “high risk” and as such have to navigate complex regulatory hurdles, where a misstep can spell doom for a business before it’s even had a chance to get off the ground. The most daunting task for merchants in these industries?
Typically, applying for a high risk merchant account from an acquirer involves several administrative and documentation requirements, including obtaining the articles of incorporation, licensing, proof of ID and address for the company and the involved individuals, requirements to undergo verification checks for the company’s principals and attorneys, presenting a source of funding for the company, as well as its processing history going back several months showing transaction volume, fraud and chargeback rates.
In almost all cases, high risk accounts come with higher fees to process transactions, including a higher initial set up fee, sometimes an additional compliance fee as well as regular monthly fees that are often double those of standard merchant accounts. In addition, they may be accompanied by extra fees and fines from acquirers and/or the card bands for breach of chargeback or fraud to sales ratio limits built into their rules. Altogether, high risk merchants are looking at spiraling costs just to be able to accept payments.
High risk merchants generally tend to process more than $20,000 in monthly volume, have an average transaction value in excess of $500 and a chargeback ratio higher than 1% of total transactions. These merchants sell products or services known to attract high levels of fraud and chargebacks. Not only do high risk merchants pay more to protect the acquirer from chargebacks, they also will pay higher prices for each chargeback. If their chargeback ratio matches or exceeds 1% the acquirer can freeze the merchants account or terminate it completely. This doesn’t just mean lost sales, it could put the seller out of business if they are blacklisted (otherwise known as placed on the MATCH or TMF list) with no way to accept credit card or debit card payments.