What You Need to Know About High Risk Credit Card Processing
Even though it feels like cash is obsolete, a high percentage of businesses still don’t accept credit cards. If you’re operating a business or opening a franchise that could accept credit cards, you need to look into high-risk credit card processing as an option. Without the ability to process high-risk transactions, you could be relegated only to an extremely limited market of people and products.
Here are five reasons you should consider high-risk credit card processing as a great position for your credit card processing.
Dealing With Excessive Fees
If you’re processing high-risk credit cards, you’re going to have to deal with a different fee schedule than the average credit card. Processors more or less assume that your higher risk clients will produce a higher number of chargebacks. This causes them to impose a series of prohibitive charges from the beginning of your relationship with them.
Many high-risk merchants are going to pay more for setting up at the start. Then they’ll end up paying high fees every month or a higher processing fee than is average.
If your business has a high earning potential, you might not have to deal with this. However, the average business can struggle with dealing with high-risk clients. Their charges can put you at risk of losing your business, even if your clients don’t achieve a high number of costly chargebacks.
Rolling Reserves Ruin Revenue
You might not realize it, but often payment processors will require clients to have a reserve of cash called a “merchant account reserve” if they accept cards. When you process high-risk payments, this will be much more common. This will be in a non-interest collecting account that will be considered insurance by the processor.
If they end up holding on to a chargeback, they’ll dip into that account to get their money. If you can reimburse them quickly and simply, they may leave your account alone. However, if you don’t they’ll be digging into your reserves whenever they have an issue with your clients.
You’re best off keeping around 5% to 10% of your monthly sales in your merchant account.
Leave enough to cover six months just to be safe. While the money technically belongs to the merchant, you can’t get it until six months have passed. If you don’t owe any fees, it’ll be transferred to you.
However, since that percentage usually helps to contribute to growth in an organization, it can cause cash flow issues. If you’re still expanding, it can be a serious problem.
Chargeback Fees That Go Up
Every time you get a chargeback fee, it’s not the same. That amount of money to cover what it costs for your financial institution to cover a chargeback isn’t always a consistent number. In fact, if you’re dealing with a high-risk payment processor, you could see higher fees each time.
If you’ve already handed over a couple of chargeback fees to a given processor, expect the numbers to grow each time. If a merchant in a high-risk business also hands over a lot of chargebacks to a processor, they should expect costs to go up on a regular basis.
With high-risk businesses in great danger of dealing with chargebacks, these payments are a dual punishment. Not only does the merchant have to cover the fee, but they also have to deal with the price of the chargeback.
Chargebacks Go Global
In order to stay moving in this economy, lots of merchants find that high-risk payment processors offer more benefits than costs. If you’re running an e-commerce business, this is absolutely essential.
The average processor will impose limits on the types of transactions that you accept. This will get in the way of your growth online, and restrain you. You might find you’ll end up seeing yourself prohibited from dealing with transactions where a card isn’t present.
You might not even be able to deal with multiple currencies, which is a bedrock of doing business in a globalized society. If you can’t sell to clients outside of your country, you’ll be missing out on some great selling opportunities.
Unlimited Earning is Possible
One of the benefits of processing high-risk credit cards is that your earning potential has no real limit. Low-risk merchants can’t deal with the kinds of clients you get to when you take high-risk credit cards.
If you’re processing high-risk cards, you can offer recurring payments in ways that typical processors can’t. You can even process more than $20,000 each month. You can accept payments that reach above $500 each time.
You’ll find that consumers love the flexibility you offer. You can even offer certain products that are prohibited by low-risk credit card processors.
If you’re looking at offering any kind of recurring or subscription payments, you’ll be offering a sustainable source of growth that aims at the long term. You’ll have a steady income stream that other processors can’t rely on.
With installment billing and payments that recur, you can seek out profits that are linked to big-ticket transactions.
Your earning will be capped by a typical low-risk processor, without a doubt. If you need your business to hit a potential of growth you aren’t yet able to reach, high-risk processing will allow you to have a high degree of flexibility.
High-Risk Credit Card Processing Is Smart
Even though you might see the concept of high-risk credit card processing as a negative, it’s actually a business savvy decision. If you know your market well, you might be making the perfect solution to engage with your audience in a profound way.
If you want to make decisions that always bring in revenue, check out our helpful guide for ideas.