What Are High-Risk Payments Processors and How Do They Work?

Key Takeaways

• High-risk payment processors play a critical role for businesses that face unique challenges. These companies, which may deal with high chargebacks or operate within industries considered risky, often find it hard to secure standard processing agreements.
• High-risk businesses need to pay higher fees, agree to more extended contracts, or hold reserves when they commit to high-risk payment processors since they entail more risks to manage.
• Choosing the suitable processor involves looking at several factors like fees per setup, termination, transaction, and rolling reserves.

Understanding High-Risk Payment Processors

A high-risk processing payment processor is a company that helps high-risk businesses with their transactions. These processors handle payments for companies that often face chargebacks, have data breaches, or have low credit ratings.

They work with various industries, such as online gaming, digital goods, and travel services. Because these types of businesses pose more risk, the processors charge higher fees to manage their accounts. They specialize in supporting these businesses by offering services like underwriting process assessment and fraud protection.

With the support of a high-risk payment processor, high-risk businesses can operate smoothly without worrying too much about transaction threats.

Business Types Often Considered as “High-Risk”

Some businesses face more challenges and risks than others. They are labeled as high-risk due to various factors, such as high chargebacks and susceptibility to fraudulent attacks.

• Travel Agencies: This sector is unpredictable due to fluctuations in ticket sales, bookings, and cancellations. The risk of chargebacks is high.
• Online Retail: Selling high-value items like electronics online can attract fraudulent purchases, increasing the risk for payment processors. Large transaction sizes coupled with delivery times can also lead to higher customer chargebacks.
• E-commerce Platforms: High sales volumes, international transactions, and the likelihood of chargebacks put e-commerce merchants on the high-risk list.
• Online Gaming: Most of these businesses are based offshore and are at risk of money laundering and fraudulent behavior.

These business types need specialized merchant accounts to process payments securely while managing their unique risks. High-risk payment processors offer services customized to these industries, helping them handle risk assessment, merchant account needs, payment gateway integration, chargeback prevention, and overall risk management smoothly.

How High-Risk Payment Processors Work

The payment processing industry has many parts, including high-risk processors. These companies cater to businesses that face bigger challenges, like accepting large payments or dealing with customers worldwide.

Regular payment options might not work well for these high-risk businesses, so high-risk payment processing companies provide them with specialized support to handle their unique needs.

High-risk payment processors step in where others step back. They deal with international dealings and big sales volumes daily. Yet, this comes at a cost—higher fees and strict account rules are standard here. This is fair when you consider how many potential dangers they are mitigating to keep your business safe.

Factors That Determine High-Risk Status

Industries like online gaming, eCommerce, digital goods, and travel services are usually categorized as “high-risk.” Banks and processing companies have a set of standards to determine whether a business is high-risk or not, which impacts their approval rates. Here are factors that banks and processors examine closely, as well as elements you need to watch out for.

• Chargeback History: If your business has been hit with many chargebacks, it’s seen as risky. Reasons for chargebacks can include customer disputes or fraud.
• Transaction Volume: This factor significantly influences risk assessment. A high volume of transactions increases the potential risk for processors, especially if those sales are large in scale.
• Credit Score: A poor credit score or shaky financial background makes lenders wary.
• Geographic Location: Operating in countries with high fraud rates or dealing extensively with clients from those areas raises flags.
• Compliance with Industry Standards: Failing to meet required standards for data security, for instance, marks your business as a higher risk.
• Online or Over-the-Phone Transactions: Companies that conduct a significant portion of their transactions online or over the phone (card-not-present transactions) pose more risk than those with physical card swipes due to the increased chances of fraud.
• Nature of Product or Service: The nature of the product or service being sold also matters; if there’s a long lag between payment and delivery, like in pre-orders for expensive goods, it’s seen as more risky because of the chance customers might cancel orders.

The Inner Workings of High-Risk Payment Processing

Underwriting and risk assessment are critical steps in setting up a high-risk merchant account. These processes help payment processors understand and manage the risks involved and decide whether they can support the high-risk business. These factors also affect the conditions of the contract.

• The business evaluation kicks off the process. Payment processors examine a business’s operations, sales volume, and country of operation.
• Financial statements help processors judge a business’ financial health by revealing its credit score.
• Verification of licenses ensures that the business meets all legal requirements for its industry.
• Industry-specific regulations are checked to ensure the business follows all necessary rules.
• A solid business plan shows the payment processor how well-planned the business operations are.
• Website reviews are crucial for online businesses to prove good security and user experience.
• Customer service quality is assessed to ensure customer complaints and issues are handled properly.
• Chargeback management strategies are evaluated to see how a business plans to reduce chargebacks.
• Fraud prevention measures are considered crucial, and processors examine how a business plans to protect itself against fraud.

Benefits and Drawbacks of High-Risk Payment Processing

High-risk payment processors offer several benefits to businesses. They provide various payment options, which help prevent fraud and allow businesses to accept different types of payments from around the world. Additionally, these processors have tools to effectively manage chargebacks, maintain merchant accounts’ health, and save money.

High-risk payment processors also support frequent large transactions, enabling companies to handle substantial sales volumes without concern. By facilitating global operations, these processors reduce lost sales due to cart abandonment.

However, there are disadvantages to using high-risk payment processors. They often come with higher fees and a longer underwriting process, increasing costs and delaying the start of services. Rolling reserves are another challenge, as a portion of earnings is held back as a safety net against risks, limiting immediate access to funds.

Furthermore, limited payment options and reputational risks are significant concerns. Many traditional banks and payment processors may be reluctant to work with high-risk businesses, making it harder for these businesses to grow and maintain a good reputation in their industry.

Finding the Right High-Risk Payment Processor

Choosing the right high-risk payment processor can shape your business’s success. Here are key considerations to take note of when choosing a high-risk payment processor to work with and safeguard your business transactions:

• Look at fee structures carefully to avoid hidden costs.
• Make sure they follow legal rules, including PCI DSS, to keep card information safe.
• Check if they have strong systems to manage risks and catch fraud early.
• See if their pricing and fees for transactions seem fair and transparent.
• Ask how well they handle chargebacks and if they help fight false fraud claims.
• Find out if they offer good customer support when you need help fast.
• Investigate their reputation by reading reviews from other businesses like yours.
• Confirm they can work with your business type since not all processors accept every high-risk category.
• Read the contract terms thoroughly before signing up to avoid surprises later on.
• Look for extra services that could benefit your business, such as advanced security measures or marketing tools.

By considering these points, you can find a payment processor that fits your high-risk business well, helping it grow safely and operate smoothly. Choosing wisely could save you money and trouble down the road.

Vellis as Your High-risk Payment Processor

At Vellis, we specialize in handling high-risk processing, offering solutions like chargeback mediation and protection against friendly fraud.

A game-changer for businesses in sectors like online gaming, travel services, and digital goods, Vellis helps by offering specialized merchant accounts adapted for these high-risk businesses. Companies facing high sales volumes or fraud risks can rest easy with our help.

Our approach isn’t one-size-fits-all; it’s crafted to fit the unique needs of each business within these challenging fields. Partnering with providers who understand the intricacies of high-risk businesses is crucial—that’s why Vellis is here to bridge that gap, offering customized solutions and critical services to ensure our clients’ operations run smoothly.

Conclusion

High-risk payment processors are crucial for businesses that are likely to experience chargebacks and fraud. These businesses need special handling due to issues such as poor credit records, controversial products, large international sales, and heavy regulation.

Investing in a specialized high-risk payment processing company like Vellis can be a game-changer for businesses in high-risk industries like online gaming, travel services, and eCommerce.

Process with Vellis today to ensure safe and secure transactions for your business!

FAQs:

1. Why would a business be considered high-risk?

A business might be called high-risk if it has many chargebacks, sells globally, or engages in gaming or online retail.

2. Are there extra fees with high-risk payment processors?

Yes, dealing with riskier stuff means companies must charge more to keep things running smoothly.

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

Yes, high-risk payment processing is meant for high-risk businesses that can’t easily get help from regular banks because of their risky nature.

References

WebPays. What Advantages Merchants Get with the High-risk Payment Processor? https://www.linkedin.com/pulse/what-advantages-merchants-get-high-risk-payment-processor-webpays. Published May 30, 2023.

Miranda D, Hoory L, Bottorff C. Best High-Risk Merchant Account Service Providers of 2024. Forbes Advisor. https://www.forbes.com/advisor/business/best-high-risk-merchant-account-providers. Published March 20, 2024.