High Risk Payment Processing — A Complete Guide

As a business, when it comes to maintaining a merchant account, it can feel like you’re navigating uncharted waters. Understanding how credit card processing works is already confusing enough. And it gets even more complicated when you get into what determines if your business is considered high risk or not.

It is not uncommon for credit card companies to leave business owners in the dark about their criteria for what makes a business a high-risk merchant account.

Calculating risk factors when starting a business is imperative. If you fall into the high-risk category, you must find a suitable high-risk payment processor to help you get a merchant account. Read on for a complete guide on high-risk processing and what to do if you’re placed on the MATCH list.

What Are High-Risk Merchant Accounts?

Everything goes through an underwriting process whenever a business tries to obtain a merchant account. This process is like applying for a loan or a new credit card. Banks must evaluate the person applying to ensure they’ll be able to pay them back, plus interest.

When it comes to approving a high-risk merchant account, banks will assess the type of business it is and the principal owner of the business.  { Forbes Advisor: “High-Risk Merchant Account: What It Is And How It Works.”}. Understanding the nature of your industry and what merchant account providers characterize as high risk can help you avoid multiple application declines or the need to search for new providers.

When approaching a merchant account provider, it is essential to remember that they all have criteria for classifying businesses as low or high risk. Being classified as a high-risk merchant means your business did not meet the standard credit card processing requirements. It may require more consideration when getting approved for a merchant account.

Options are often limited for high-risk businesses pawned off to the International Organization for Standardization or small subsidiaries offering long-term contracts and early termination fees. Business owners who have trouble getting approved will usually go with the first company that accepts them and be charged high merchant fees.

Payment Gateways vs. Processors

Payment processors and gateways are the two most essential elements in card payment transactions. Payment gateways create a sage connection between a business website and the consumer. This technical tool ensures that credit or debit card data is securely transmitted.

A company that handles credit and debit card transactions for a business are payment processors. Front-end and back-end processors are the categories of payment processors that allow businesses to collect customer payments.

The responsibility of the front-end processor is to maintain a connection with the card networks, other payment services, and control the merchant account on behalf of the client. Back-end processors move money from the customer’s bank account to the merchants and are responsible for settling transactions.

Your merchant account and service providers may also provide you with a credit card machine or other equipment your business requires to collect payments. Partnering up with a payment processor is essential if you want to collect payments through credit or debit cards from customers.

What Determines if a Business is High Risk

Each acquiring bank will have unique high-risk merchant account categories and criteria for evaluating your business because every credit card processing company is willing to assume different levels of risk { Office of the Comptroller of the Currency: “Payment Processors: Risk Management Guidance.”}.

Credit card processing companies will take the following factors into consideration to make a decision about whether your business is high-risk.

Potential for fraud and high chargebacks

Processing companies and banks will evaluate the service or product your business provides and review whether there has been a history of high chargebacks compared to the amount of transactions processed every month. You may be considered a high-risk merchant if your company has a history of high chargebacks.

Businesses over 1% of chargebacks are typically regarded as high-risk merchants.

Businesses located overseas

Any business located outside of the U.S. that sells most of their product in the U.S. are typically considered high-risk merchants by credit card processing companies. Every acquiring bank has different standards. However, each country has various regulations, which creates the potential for more risk.

The types of products or services being sold

Selling a product or service that is considered controversial or illegal, such as marijuana or fantasy sports, may put your business in the high-risk category. Furthermore, if a company is trying to scam customers by selling a product or service that is not what it appears to be, will also make it a high-risk merchant account.

Some industries that are permanently certified as high risk include:

• Casinos
• Alcohol and liquor
• Debt collections
• Pornography or adult products
• Online gaming
• Subscriptions
• Trials and free offers
• Multi-level marketing
• Vapes and e-cigarettes

The poor credit score of the business owner

A business may be considered high risk if the principal owner has a credit score of 400 or below. Similarly, when an individual applies for a personal loan, the underwriting team would consider them high risk with the same score. They’d also be skeptical of whether they’ll receive their money back.

Large transaction size

Credit card processing companies deem a transaction amount that exceeds $3,000 as a high ticket sale. You may be considered a high-risk merchant if your business processes large transactions.

Credit card companies put businesses that have high ticket sales in this category because the risk is higher if the transaction turns into a chargeback.

Finding a Quality Merchant Service Provider

Building your knowledge of what you need to find a quality merchant service provider willing to approve a high-risk merchant account can help protect your business from wasting time waiting for an approval, or being faced with overpriced rates. Conducting your research on the service provider you intend to approach, and their experience in the high-risk industry, is essential when running a high-risk business.

The approval process for each company varies. And the decision often comes through their partnered bank. When considering a potential merchant account provider, determine who their processing bank is and if they have experience handling high-risk businesses in your industry { Nerd Wallet: “Best Payment Processors for High-Risk Merchants.”}.

There are often certain conditions and limitations that come with high-risk merchant accounts. These include:

• Liquidated damages clause
• Early termination fees
• Higher processing rates
• Limitations on the number of gateways or processing options
• Rolling reserve
• Long contracts (typically three years)
• Lower processing limits

When banks assume more risk, they want to ensure they will be appropriately compensated. In the high-risk field, companies often charge merchants over 3.5% for this reason. However, some merchants may be able to negotiate a fairer rate.

What is the MATCH List?

The MATCH List or Member-Alert-To-Control-High-Risk is a database maintained by credit card processors and other payment companies of merchants whom they believe pose a high risk. This is due to potential issues like data breaches, excessive fraud, high chargebacks, or identity theft. Immediately following a decision to terminate the processing relationship with a merchant, an acquirer must report the decision.

Obtaining credit card processing in the future is very difficult once someone is put on the MATCH list. Businesses that land on MATCH remain on the list for five years, at which point the list is automatically deleted. Before signing a processing agreement with a company, most credit card processing companies check the MATCH list and typically reject merchants on the list { Mastercard: “MATCH: Enhance your ability to fight fraud and protect your business.”}.

Businesses on the MATCH list are often subjected to increased monitoring and greater scrutiny. But, some companies are more tolerant of high-risk merchants and will provide them with processing services.

Summary

Businesses that fall into the high-risk merchant category should be prepared for extra scrutiny from payment processors. High-risk merchants should also expect to pay additional fees on credit card processing than a business that is not considered high risk. Looking for a credit card processor that specializes in high-risk accounts may be beneficial for your business in the future {Securion Pay: “High-Risk Merchant Account — What it is and How it Works.”}.

While merchants in this category should expect higher fees, they should be wary of being taken advantage of by a merchant account provider. The terms of your contract can always be thoroughly evaluated and negotiated before you decide to sign.

What You Need to Know to Get Off MATCH

Getting off the MATCH List is not easy. Acquirers even loathe when they must remove a merchant from the list that was added in error. However, to avoid facing liability, this is one of few instances where high-risk merchants are taken off MATCH.

Being on the MATCH List often means a business will have difficulty getting credit card processing in the future. Additionally, few processors accept merchants on this list and typically charge high rates {Mastercard: “MATCH: Enhance your ability to fight fraud and protect your business.”}. Credit card processing is essential for most businesses, and an inability to process payments may lead to a complete loss of income.

Our skilled attorneys understand what a nightmare it can be to get placed on the MATCH List. The complex litigation experts at Global Legal Law Firm have years of experience getting people off MATCH. Contact us to see how we can help.