What Is a High-Risk Payment Service Provider?
A PSP verifies the transactions that occur between a customer and a merchant. The company sends a payment request to a card association and, in turn, it refers it to a card-issuing bank. The latter will then either accept or reject this money transfer. The key aspects to check out before landing on a PSP for your high-risk business are as follows:
Payment Gateway
A Payment Gateway is a technological layer that functions on top of a PSP. It has transaction verification and encryption systems on its backend, and credit card payment forms on its front end. A PSP should have its own Payment Gateway that provides security measures for both merchants and customers.
Chargeback Safety and Anti-Fraud Measures
A PSP should be compliant with customary regulations, including GDPR, PSD2, and PCI DSS. Moreover, you need to ensure that your chosen PSP offers adequate security measures and technical solutions to counter fraudulent transactions and chargebacks on your merchant account.
Customer Support Service
A highly important and often overlooked aspect is good customer support. Make sure that your chosen PSP provides active customer support 24/7 as could find yourself in situations where you have to contact the staff as soon as possible.
Processing Fee and Restrictions
This is another highly critical aspect of any PSP as it could make or break your business. You need to ensure that the credit card processing charges are justified and guarantee your account security. The restrictions should not be too severe, as that could cause irrevocable damage to your business. Moreover, it should be in your knowledge that the credit card processing fee for small, medium, and big businesses typically tends to differ.
Support for Multiple MID Accounts
Lastly, it’s better to choose a PSP that supports multiple Merchant Identification (MID) accounts as it can benefit your high-risk business considerably. With multiple accounts, you’ll be able to distribute the load to avoid breaching the transaction limit. Moreover, you will also be able to bounce back on your feet in case one of your accounts gets closed or blocked by the bank.
What Classifies a Merchant as High-Risk?
Although the regulations tend to differ from one PSP to the next, a high-risk merchant is generally classified as follows:
- Poor Credit Card History: If you’ve missed a few bill payments in the past, failed to pay them on time, or are in debt, your merchant account is highly likely to be classified as high-risk. This is also the case if you’re just starting out on your journey by opening a new business and your credit card processing history is very limited.
- Excessive Chargebacks: Even if your business is considered low-risk, you could be deemed a high-risk merchant if your chargeback ratio exceeds 1%. In this case, you will receive several warnings from your bank or a Third-Party Provider (TPP). If the situation persists, your account will be converted to high-risk.
- Being a Part of a High-Risk Industry: Often, businesses like gambling, adult services, tourism, herbal supplements, tobacco-related products, and telemarketing are considered high-risk. As such, being in the Kratom or CBD industry means having a high-risk merchant account.
- Country of Operation: If you’re doing business with countries that have a high chargeback risk as a whole, your company will be deemed high-risk. Safe options include the US, EU, Singapore, Japan, and Canada. However, chargeback statistics tend to vary every year.
- Subscription-Based Products and Services: If your business runs on subscriptions, it will be classified as high-risk because your clients have the option to unsubscribe at any given moment; thus, leading to higher chargebacks in most cases.
How Does Online High-Risk Credit Card Processing Work?
The e-commerce realm is a lot more susceptible to fraudulent transactions than real life. High-risk merchant credit card processing tends to differ from its low-risk variant as it accompanies an additional layer of security.
The process for online credit card processing involves the following steps:
Customer > Online Selling Platform > Payment Gateway > PSP > Credit Card Association > Card Issuing Bank > Card Issuer’s Processor.
You can break this scheme down as follows:
- Any cardholder will find your online shop, choose a product/service that you sell, and make a purchase. To complete the process, they will be redirected to a payment gateway to ensure their identity.
- A high-risk merchant should opt for a payment gateway with a 3D-secure protocol that asks for two-factor authentication. If a dispute arises in this sort of transaction, the chargeback shifts from your account to the card-issuing bank.
- A PSP might provide additional security measures for your high-risk account at the payment gateway stage. This could lead to additional charges on your part.
- After verification, a payment request is sent to the acquiring bank and it redirects it to a card association. Remember that a PSP might limit the number of monthly transactions accepted by your high-risk merchant account.
- A card association forwards a payment request to a card-issuing bank, which in turn allows or denies the transaction. The results are then transferred to the customer.
It’s important to note that 5 to 15% amount of each transaction might be utilized for a rolling reserve in case of high-risk merchant processing.
What Are the Pricing Policies for Such Accounts?
With a higher chargeback and fraudulent transaction rate, come strict policies and fee structures. As a high-risk business owner, payment processing services — setup, termination, monthly, and annual — will always cost you more. In addition, you may also be charged with a Payment Card Industry Data Security Standard (PCI DSS) compliance fee ensuring your customer’s data safety. You’ll also need to have a rolling reserve as protection from excessive chargebacks. This is typically equivalent to your earned money that has not been spent for over half a year.
