Every business that is run today requires a lot of effort from the merchant running the business and cooperation and help from other institutions. These are the institutions that play a vital role in the success of a business as they assist in terms of manufacturing, shipping, timely deliveries, and, most importantly, payment processing. While regular businesses who do not involve any risk or frequent payments Do not find it difficult to find payment processors, a high-risk merchant may not find a high-quality payment process at favorable terms. These high-risk businesses and merchant accounts are often subjected to high fees, higher rates, and unfavorable terms of service to get a primary credit card processing facility. Therefore, a higher-risk merchant must get a credible and reliable high risk merchants credit card processing facility that does not exploit them for being a high-risk business.
What is credit card processing?
In this light, it is essential to understand how credit card processing works. Credit card processing is when a customer provides the credit card information for payment on the store or online through their card or using a digital wallet. Then this payment information is sent to a processor who then communicates with the bank of a customer or the appropriate card network Visa MasterCard, etc., to approve or deny the transaction. This approval or rejection is based on the details, verification, and other factors. Once the approval is sent to the payment processor, the messages are sent to the credit card reader at the store or the service portal running online. The transactions are then batched for settlement which typically takes anywhere between a day or two. Finally, the customer’s account is charged for the transaction, and then the deposit is made into your merchant bank account. This is how a credit card payment processor works.
What is different in high-risk credit card processing?
A high-risk merchant account is a business that has a higher risk of chargebacks, frauds, higher bills, and repetitive payment cycles. All these factors are considered high-risk by banking and financial institutions. Since these businesses have a higher risk involved in chargebacks, frauds, etc., they’re often subjected to unfavorable terms, denial of merchant account facility, higher fees, and other rates and fees that are not applied to other merchant accounts or low-risk merchants.
Since there is a high risk involved with these businesses, due to the company’s nature, the possibility of higher chargebacks, and financial frauds, the credit card processors often do not give any services to such merchants.
A processor who gives them such a facility accepts the liability associated with this increased risk. This risk/ liability is calculated through a complex process and differs from one institution to another, and reflects in their rates and terms. Therefore, even though the payment services or credit card processing service is the same as any other merchant, the same process becomes slightly risky with high-risk business accounts. However, many payment processors do not exploit high-risk merchants and provide them committed services without charging them extraordinary rates or fees or offering unfavorable terms.
Five businesses that require high-risk credit card processing:
- Vaping, smoking, and other cannabis-related businesses: Many vendors and manufacturers sell cigarettes, vaping devices, CBD, and other related products online. However, the legality of such products and other documentation they have to maintain and provide the authorities is huge and differs from state to state. Additionally, non-compliance can lead to severe repercussions. Therefore, due to its taboo, the rigorous regulation it is subjected to, age restrictions associated with its products, and the legislation that differs from one place, it is difficult to get a reliable and reasonable credit card processor. Additionally, since people prefer to buy such products online rather than a physical store, there is a growing need for a good payment processor among these businesses. A significant share of the revenue is earned through online purchases.
- Adult entertainment: As most adult entertainment transactions are done online, they heavily rely on a good credit card payment processor to ensure the smooth functioning of the business. Even though adult entertainment is one of the most lucrative and financially appealing industries, it is a high-risk industry associated with reputation risk and taboo. Therefore, even though adult entertainment merchants have high transactions and a high-paying industry, they find it challenging to find a reliable and reputed payment processor. It brings a reputation risk that financial institutions stay away from.
- Firearms: Another business that requires high credit card processing is firearms merchants. It is a high-risk business as there is a constant controversy around gun laws and usage in the US. Due to this reason, such merchants find it difficult to find a good quality payment processor as most institutions offering them services do not understand the laws and regulations around guns and stay away from such merchants. However, with around 32% of families in the country owning a firearm, the industry is experiencing a boom and will need services of a good quality credit card processor.
- High ticket: Customers are always looking for a great online deal on the products of their choice. There is stiff competition between retailers and brands with a growing trend of owning luxury pieces, branded items, and products. Since these products come with a high price tag, they are often accompanied by a higher risk of a significant chargeback. Therefore such businesses become high-risk businesses as they have a higher risk of substantial chargebacks. Since a growing number of people purchase high-end luxury products online through online banking facilities, such businesses must get access to a high-quality credit card processing service.
- Online Poker services: Online poker services have gained immense popularity in the past few years; however, they are regarded as high-risk businesses. This is because they have high-volume turnovers, irregular payment cycles, frauds, cases of money laundering, and the laws and regulations surrounding their functioning are very complicated and require thorough documentation and high compliance. Moreover, as online poker is conducted through online transactions, these merchants are always looking for a reliable credit card processor as the entire functioning of the business is based on the processing of transactions quickly and efficiently.
A final word:
Those days are gone when people would visit physical stores to buy products for cash. Instead, with e-commerce and all significant businesses running online, people buy products and make payments online through payment gateway, credit cards, debit cards, etc. As an increasing number of companies rely on credit card processors to handle accepting credits and debit card payments due to growing online shopping, credit card processing has emerged as a critical service to ensure that customers can make payments safely and quickly.