High Risk Credit Card Processors

Carron Nicks
POS terminal

When a merchant accepts credit cards or debit cards to pay for product or service, the transaction goes through a credit card processor. Some companies pose an especially high level of risk, which can be indicated by the nature of the industry, having a high rate of chargebacks, returns or other reversed transactions. While some credit card processors will not work with businesses considered high-risk for credit card processing, there are a number of companies that do.

Examples of High Risk Processors

Credit card processors all offer similar services, like debit and credit card processing at point of sale, telephone, and online, chargeback assistance, and the ability to process checks. CardPaymentOptions.com identifies PaymentCloud, eMerchantBroker and Host Merchant Services as examples of high risk processors that consistently receive high ratings for the breadth of their industry coverage, products, and customer service.

PaymentCloud

PaymentCloud boasts that it approves 98% of the high-risk businesses that apply for its services. Its customer base isn't limited to one sector or a few industries, but runs the gamut from adult entertainment and online dating to credit repair, nutritional supplements, and much more.

Services include:

  • Debit and credit card processing
  • No set up or application fees
  • Payment card industry (PCI) compliance
  • Merchant cash advance
  • Virtual terminal
  • Check services
  • Equipment Leasing
  • Gift and loyalty program

eMerchantBroker

Claiming to accept 95% of applicants, eMerchantBroker is one of the few companies that provides credit card processing for marijuana dispensaries and delivery services in the United States. The company also claims to accept merchants that other high-risk credit card processors avoid, like online gaming, bail bonds, adult products, and firearms.

Services offered include:

  • Debit and credit card processing
  • Check processing
  • Automated clearing house (ACH) payments
  • Merchant cash advance
  • Online payment gateway
  • Virtual terminal
  • Chargeback assistance
  • Point of sale (POS) equipment

Host Merchant Services

Host Merchant Services appears to be one of the few that advertises its pricing structure, called interchange-plus, on its website along with an explanation of what that means to a merchant. Before starting HMS, the company's founder launched, ran, and sold a successful web hosting service. As a result, many of its customer merchants are web hosting companies and cloud service providers. In fact, HMS offers web hosting and email services to its customers in addition to processing credit card transactions.

HMS offers services including:

  • Debit and credit card processing
  • Online payment gateway
  • Shopping cart integration
  • Check processing
  • Electronic benefit transfer (EBT) acceptance
  • Gift and loyalty programs
  • Merchant cash advance

Judging Merchant Risk

swiping credit card

The basic process of processing credit card payments is the same for all companies, but the level of risk can vary greatly by industry. The more chargebacks and other issues a merchant experiences, the higher the potential that for the merchant and the card processor to lose money. Therefore, card processors judge risk based on their potential to lose money or not make as much money as they'd like from the merchant. Processors judge risk based on two broad factors:

  • The industry in which the merchant operates
  • The relative security of the transaction itself

High Risk Industries

Some industries are more likely to cut into the processor's bottom line and maybe cost the processor money. There are no hard and fast rules that determine whether a merchant will be considered high risk for all purposes and for all processors. Processors make their own decisions on whether to offer services to industries or to particular merchants. Many make the search for an available and affordable credit card processor easier by publishing lists of the industries they consider high risk and of the industries that will not serve at all.

Examples of high risk industries include:

  • Jewelry
  • Software
  • Marijuana dispensaries
  • Online auctions
  • Collection agencies
  • Firearms
  • Timeshare sales
  • Check cashing
  • Adult entertainment
  • Offshore businesses

Transaction Characteristics

The characteristics of typical transactions also have a bearing on whether a merchant will be considered high risk. Riskier transactions include:

  • Average charges of more than $50
  • Sales method (auctions and affiliate marketing, for example, are generally considered high risk)
  • Transactions where the card is not present, such as online purchases (According to CreditCards.com, card-not-present fraud (including online) accounted for 45 percent of credit card fraud in 2014.)

Merchant or Transaction Location

Where the merchant is located or where the transactions originate are also factors in defining a high-risk merchant. Indicators of higher risk include:

  • Merchant located offshore
  • Transactions take place outside of the U.S., Canada, Europe, Australia, or Japan
  • Merchant deals in multiple currencies

Chargeback Frequency

The process of issuing a refund against a credit card is called a chargeback. A chargeback may occur when the cardholder:

  • Returns merchandise
  • Questions an erroneous charge against the account
  • Disputes a transaction because of dissatisfaction with the merchant

When the merchant refunds money to a purchaser or covers a fraudulent charge, the transaction reverses. Every merchant will pay a fee for a chargeback, but for a merchant pegged as high risk, those fees escalate. High-risk merchants are often placed into special monitoring programs that automatically assess higher fees. If the merchant exceeds a certain number of chargebacks, processors may charge ever-increasing fines.

Pricing Considerations

Finding information about pricing of processing services is difficult, but it is safe to assume that gateway and interchange fees are higher in situations where a high risk processor is necessary. While high risk processors may charge higher fees and put into place more stringent monitoring, they rarely drop a merchant.

Contracts are usually individually negotiated and are influenced by the type of industry, type of transaction, and location of transaction. There are also different pricing models. For instance, with tiered pricing, which is the most common model, transactions are usually divided into three levels. 'Qualified' transactions meet all the processor's requirements for processing. 'Mid-qualified' or 'non-qualified' transactions fail to meet all the processor's standards and will cost the merchant a higher fee.

Shopping Around Is Worth the Trouble

High-risk merchants will pay more for credit card processing because it reflects the risk the credit card processor takes. That doesn't mean that a merchant needs to contract with the first processor that approves the merchant's application. It pays to take time, research, shop around, and ask questions.

High Risk Credit Card Processors