Navigating High Risk Payment Processing for Online Businesses

Oh, you thought running an online business was hard? Well, wait until you’re “high risk.”

Welcome to the club.

The fact is that 71% of businesses suffered a payment fraud attack in 2023. If you’re already at high risk, you’re at a disadvantage before you even get to processing your first payment.

Payment processors, on the whole, don’t want high risk businesses. The ones that do charge you absurd rates and add restrictions that leave you with all the pain and hardly any gain.

But fear not… it’s not all doom and gloom. You can work through this and find a way to get the best of both worlds (you and your payments processor) if you know what you’re doing.

In this complete guide to high risk payments processing, you’ll learn:

• Why your business is high risk
• The true cost of high-risk processing
• How to find the right high risk payment processor
• Ways to reduce your risk profile

What Is a High Risk Business?

Before we dig in, I need to explain what high risk actually is…

High risk is just a classification given by your payment processor. It has nothing to do with how well you run your business. It’s really just their insurance policy against potential losses.

But here’s the thing, your business becomes high risk in their eyes if:

1. You’re in an industry with historically higher chargebacks/fraud ratios. This could be adult, gambling, CBD, subscription, travel services, etc.
2. You’re a new merchant that starts out low risk but gets upgraded to high risk due to your chargeback ratio increasing beyond acceptable thresholds. Most processors cap the chargeback rate at 1% of transactions before adding fees and restrictions or terminating the account.

How Much Does High Risk Payment Processing Cost?

Okay, you’re curious about how much it really costs to be high risk, right?

Ordinary businesses typically pay 3.49% to 3.95% per transaction. High-risk merchants? Fees start at 3.5% and can go as high as 5% or more per transaction!

You’ll also pay:

• Setup fees that can cost you up to $2,000.
• Monthly fees ranging from $10 to $50 per month.
• Chargeback fees from $10 up to $100 per dispute.
• Rolling reserve requirements in which your processor holds 5% to 15% of your revenue for six months to a year before releasing it.

This is why it’s crucial to choose the right high risk online payment processing service for your business. If you can’t accept payments or have your money sitting with your processor, you can’t make money. Without a high risk payment gateway and processor who knows your industry, you’re literally leaving money on the table every day.

It’s expensive. But remember, payment processors have to offset the additional risk they take on by processing your transactions.

Why Are High Risk Payments More Expensive?

Think of it as your business buying insurance.

If fraud occurs or chargebacks get excessive, processors write that loss check. And it’s not just about the money. Fraud and chargebacks cost processors time and resources to manage.

The additional fees go toward managing this risk. The global payment fraud losses amounted to $38 billion in 2023 and will only increase year after year. Payment processors have to have protection against it. Thus the restrictions for high-risk merchants.

How to Find a High Risk Payment Processor

Okay, now that you know how it works…

Not all high risk payment processors are the same. Some cater to specific industries while others work with blacklisted or delisted businesses.

Your job is to find a payment processor who understands your specific situation and can work with you.

Look for payment processors with:

• Approval rates above 95% even for blacklisted or MATCH-listed businesses.
• 24 to 48-hour application turnaround times.
• Transparent and detailed fee structures. Hidden fees are a business killer.
• A wide range of fraud prevention features. Chargeback alerts and real-time transaction monitoring can save you money.
• 24/7 customer support that picks up the phone.

How to Lower Your Merchant Risk Rating

If you’re already high risk and want to improve your status with a payment processor…

There are specific actions you can take that will help lower your risk profile over time.

• Keep your chargeback ratio below that dreaded 1% threshold. Excellent customer service, clear billing practices, and delivery confirmations of products or services help.
• Document everything! Save shipping receipts, delivery confirmations, and any customer communications. This will be useful in winning chargeback disputes.
• Maintain a healthy business bank account balance. If your business has a consistent revenue stream and never overdraws the account, it’s less of a worry for the processor.
• Be transparent about your business operations during the application process. A business who is upfront about any concerns or obstacles will get help from a processor. One who tries to hide or downplay high-risk aspects will get terminated later when they are discovered during underwriting.

The best thing is that as fraud detection tools and AI-powered analysis improve, high-risk processing is changing. As soon as fraud can be more accurately detected and differentiated from legitimate sales, some of these restrictions will be lifted.

High Risk Merchant: What NOT to Do

Here are a few common mistakes to avoid:

• Trying to hide your high-risk status. The processor will find out when they underwrite your account. Termination is almost immediate for this and you’ll get put on the MATCH list, which follows you for many years to come.
• Treating chargebacks as inevitable. All merchants have chargebacks from time to time, but don’t just roll over and accept them. Each one costs you money and processor goodwill.
• Basing your decision solely on the lowest rates. The processor offering the lowest fees may also have the worst customer service and hidden fees.
• Failing to read the fine print of your contract. Early termination fees and rolling reserve requirements may not be visible at the front end but are there. Know what you’re getting into before signing.

High Risk Merchant Must-Have Tools

If you’re going to navigate high risk payment processing, you need certain tools:

• Chargeback alert systems that alert you as soon as a dispute is raised
• Fraud detection software to screen transactions in real-time
• Address verification, CVV checking and 3D Secure authentication for customer verification
• Transaction record keeping systems for disputes and audits
• Clear communication channels including order confirmations, tracking and responsive customer service

High Risk Doesn’t Mean “Risky”

High risk payment processing doesn’t have to be the horror story you see painted by unscrupulous payment processors.

Of course, you will pay more and higher risk restrictions and will never process your payments as easily as low-risk businesses. But that doesn’t mean you can’t be successful in your business or have a mutually beneficial relationship with a high risk payment processor.

It’s finding a partner that understands your industry. Someone with transparent pricing, strong fraud protection and is willing to work with you.

Invest time researching your options. Compare fees and features. Ask about approval rates, contract terms and 24/7 support availability. Your high risk online payment processing solution should work FOR you, not against you.

The right partner and management strategies will let you focus on growing your business, not whether you can accept payments tomorrow.