As a high-risk merchant, you need to know your options before choosing a credit card processor. Large credit card processing companies typically do not accept high-risk businesses, and instead, pawn them off to subsidiaries or ISOs. As a result, high-risk merchants tend to settle for the first credit card processor that accepts them, and this can result in rate gauging, long-term contracts, and liquidated damages.
Rate Gauging
Credit card processing fees can range anywhere from 3.5% to 10% for established businesses to 10% or more for high-risk businesses. The highest rates, however, typically apply to businesses operating in the riskiest industries or companies that use “offshore” merchant service providers. Keep in mind, though, that this rate is based on qualified transactions; “mid-qualified” transactions will cost 100 basis points (1% more).
Credit card processing rates for high-risk businesses vary considerably. Some processors don’t work with high-risk businesses at all, while others work with them exclusively. High-risk companies may have a history of chargebacks, fraudulent transactions, or stolen credit cards. In such cases, the rate for processing credit cards may be higher than the rate for merchants in similar industries.
Also, Read-High Risk Payment Processors
Rolling reserve
As a merchant, it’s important to understand what a rolling reserve means, especially if you’re in a high-risk industry. A rolling reserve affects your cash flow directly and is proportional to the number of sales you generate from MasterCard and Visa transactions. This means that a 5% rolling reserve is not ideal for your business. If you’re unsure about the ramifications of a rolling reserve, check out a merchant guide to find out more.
A rolling reserve is a feature offered by credit card processors that will hold a portion of the processing money in reserve, in case of a chargeback. This feature is typically designed for high-risk merchants and is not applicable to low-risk merchants. High-risk merchants should be careful not to use it to pay for the processing fees associated with chargebacks.
Liquidated damages clause
A liquidated damages clause is a common part of a merchant account agreement. Many credit card processors include these clauses in their contracts, which can result in many complaints and poor reviews. You should avoid signing a contract with a liquidated damages clause if you want to avoid being stuck with it later.
Whether liquidated damages clauses are enforced depends on the context in which they are used. If the contract includes a provision that limits damages for breach of contract, the courts tend to be more conservative and focus on the legitimate interests of the parties involved. It’s best to keep written notes indicating the reasons behind the damages.
A Liquidated Damages clause is a contract provision that requires you to pay a fee if you terminate the service. Most high-risk credit card processing companies have such a clause incorporated into their contracts. These contracts typically have a three-year term and an early termination fee. Typically, they include a liquidated damages clause in order to reduce the risk of losing your business. However, these clauses are not always enforced.
Also, Read- Offshore Merchant Processing
Secure Websites
Whether you are a reputable e-commerce merchant or an MLM company, there is a high-risk factor involved with credit card processing. Some businesses are considered high risk because of their nature, such as those engaged in affiliate marketing, direct sales, and upsells. Because of this, high-risk merchants are charged higher fees and terms.
When it comes to high-risk credit card processing, it is important to have a secure and functioning website. This is especially important if you are an e-commerce site. You also need to have clear policies and customer service numbers easily accessible. It is also important to use a high-risk processor that offers a demo login.
Managing Chargebacks
If you’re a merchant dealing with high-risk credit card processing, it’s important to understand the process of chargeback management. You should always respond to chargebacks as soon as possible and make sure that your customers are refunded. If you don’t, it could put your payment processing account at risk.
Managing chargebacks is a vital part of credit card processing, and the right solution can ensure that your business stays profitable and on track. By working with a reputable high-risk payment processor, you can enjoy the benefits of chargeback protection, multiple currency support, and reliable payment processing services.
Some of these services have advanced fraud-fighting tools, including robust rules and filters that will automatically accept good orders and decline bad ones. Many of these systems also have dedicated chargeback departments that can assist you in addressing chargebacks.
