A good rate for high-risk processing is usually around 3.5% to 4% effective, while anything above 5% means you’re likely overpaying.
It’s no secret that high-risk credit card processing costs more than a traditional merchant account.
If your business operates in a certain industry that’s deemed to have a higher risk for fraud or chargebacks, you can expect your rates to be expensive. Same goes for businesses with bad credit, history of frequent chargebacks, or terminated merchant files.
But just because you have a high-risk merchant account, it doesn’t give your processor the right to charge you whatever they want.
You can still get a good rate on high-risk processing. While this might be a bit higher than average compared to a normal merchant account, it can be significantly lower than what you’re paying now.
Typical Rates for High Risk Merchant Accounts (Good and Bad)
A “good” rate for high-risk processing is less than a 4% effective rate. This includes your transaction fees, monthly fees, and other miscellaneous charges on your account.
Here’s an average range for high-risk processing to help you determine where you currently stand:
- Less than 3.5% – You either have an incredible deal or you’re not actually high risk. Double-check your classification.
- 3.5% to 4.5% – This is the sweet spot for high-risk processing. Most established businesses should be here, and you’re getting a good rate if you’re on the lower end of this spectrum.
- 4.5% to 6% – You’re definitely overpaying. It’s not a complete disaster, but there’s plenty of room to negotiate.
- Over 6% – You’re getting ripped off. Processors charging this much are taking advantage of your situation as a high-risk merchant account.
For context, a good effective rate on standard processing (for non-high-risk businesses) is around 2.5% to 3% on total volume. So a good rate on high-risk processing is about 100 to 150 basis points higher.
How to Tell if You’re Getting a “Good” Rate on High Risk Processing
The only way to know if you’re getting a good rate is to look beyond your initial quote and actually calculate your total costs. Some high-risk processors might offer a deceptively low qualified rate, only to downgrade your transactions to more expensive tiers.
Beyond the rate per transaction, your processor might be adding a bunch of other random fees to your account to inflate your total costs.
For example, let’s say your processor is charging you 3.95% + $0.30 per transaction. This is expensive, but not the worst we’ve ever seen on a high-risk merchant account.
If you’re also getting hit with extra fees that cost you hundreds or thousands of extra dollars every month, your effective rate can easily creep up to 5-6%. So on the surface, you may think you’re getting a “good” deal because your rate per transaction is right around 4%.
But the only number that matters is your effective rate. Take your total fees divided by your total sales. If that number is around 4% or less, it’s a good deal. Otherwise, you have room to negotiate.
Red Flags That You’re Overpaying
These are the most common signs that you’re NOT getting a good rate on a high-risk merchant account:
- Your effective rate is consistently over 5%.
- Rolling reserves exceed 15% of your sales volume.
- Tiered pricing structures with high non-qualified rates.
- Excessive fees being charged to your account every month.
- Random fees subjectively added to your account.
- Padded assessments and interchange fees.
The reality of the payment processing industry is that the majority of processors will look for ways to take advantage of unsuspecting businesses. This holds true whether you have a high-risk merchant account or not.
But once you’ve been slapped with the high-risk tag, processors treat it like a license to steal. They’re going to use every trick in the book to inflate rates beyond what’s reasonable.
Should you pay more for being in a high-risk industry? Sure. But there’s a fine line between paying more and getting ripped off. And more often than not, we see high-risk merchants getting ripped off when we’re auditing their accounts.
Why High-Risk Credit Card Processing Costs More Money
Every time your business accepts a credit card payment, the processor takes on a certain level of risk. This holds true for every type of business (high risk or not).
So when you’re applying for a merchant account, your processor puts you through an underwriting process to determine your risk level, which ultimately sets your rates.
Certain types of businesses pose a higher risk to processors mostly based on fraud and chargebacks.
Let’s say your business sells high-ticket items online to consumers overseas. You sell a $15,000 home tanning bed to a buyer in Spain. If that purchase was made on a stolen credit card, the cardholder gets refunded, and the card network recoups those losses from your processor. Now your processor needs to get the money back from you.
Because of the way credit card processing works, merchant account providers are almost providing short-term loans to businesses because they fund your sales before the buyers pay what they owe.
If the processor’s underwriters think that they’ll have to deal with lots of chargebacks, fraudulent transactions, or otherwise have a tough time recouping funds from your account, they’ll set your rates higher to plan for this.
Factors That Determine High-Risk Credit Card Processing Rates
Similar to a normal merchant account, high-risk processing rates are based on factors like business type, transaction environment, and volume. Here’s a more detailed explanation about how these elements are used to set your rates:
Industry and Business Type
Your industry is the single biggest factor in determining your rate for high-risk processing. Certain industries are automatically categorized as “high risk” when you apply for a merchant account, including:
- CBD and cannabis
- Nutraceuticals
- Travel agency
- Bail bonds
- Gambling
- Pharmaceuticals
- Adult entertainment
- Tobacco, e-cigarettes, and vape products
Within these high-risk categories, you’ll also find varying rates. For example, a nutraceuticals website will be treated differently from a travel agency.
Processing History
If you have a well-established business with a low chargeback ratio, you can negotiate a better deal than a brand new merchant account—even if your business is considered high risk.
Acquiring banks take notice if you rarely process fraudulent transactions or get chargebacks. So while your industry may be “high risk” by default, you may pose less of a risk to your processor by having an excellent track record, which can help you get lower rates.
Average Ticket Size
High-ticket items often equal higher risk exposure for processors.
High-risk ecommerce sites selling products worth thousands of dollars are often subject to higher fees simply because a single chargeback or single fraudulent transaction could essentially be the same cost to your processor as hundreds of low-ticket items.
For example, a vape pen may only cost $25, whereas a piece of luxury jewelry could cost $25,000. Even if both businesses are considered high risk, which one do you think poses a more significant risk to the processor?
Monthly Processing Volume
A high volume of sales can actually work in your favor when it comes to high-risk processing, especially if your business is well-established.
Businesses that process $100,000 or $250,000+ per month can qualify for better discounts compared to merchants that only process $20,000 per month.
The reason: your processor makes more money on your account the more you sell. So they’re willing to work with you and negotiate.
Transaction Environment
Card-not-present (CNP) transactions are always considered to be higher risk than in-person transactions. That’s because modern credit card terminals using chip-enabled EMV technology drastically reduces the risk of fraudulent sales.
The physical card itself would have to be stolen to process these sales in person. But for ecommerce purchases and phone sales, fraudsters can just use stolen credentials (without the actual card).
Other Fees That Increase Your Total Processing Costs
While your cost per transaction typically accounts for the bulk of your high-risk processing fees, there are lots of other hidden fees on your statement that can easily raise your effective rate by another 100 to 200 basis points.
Keep an eye out for these costs:
- Account setup fees
- Application fees
- Monthly gateway fees
- PCI compliance fees
- Chargeback fees
- Reserve account fees
- Annual fees
- Fraud monitoring fees
- Batch settlement fees
Rolling reserves are common on high-risk accounts because it’s easier for your processor to access funds in the event of a chargeback (because they’re holding a percentage of your sales volume). But this can be detrimental to your cash flow, especially if those reserve accounts exceed 10% to 15% of your sales volume.
While any rolling reserve sucks to have, try to keep it closer to 5% if possible.
Early termination fees are also brutal on high-risk accounts, especially if they contain a liquidated damages clause. These contract terms can make it nearly impossible for you to cancel your account without paying tens of thousands of dollars to your processor.
How to Reduce Your Costs and Get a Better Rate on Your High-Risk Merchant Account
If you have a high-risk merchant account, don’t worry, you’re not stuck paying high fees forever. There are several ways that you can lower your cost to get a good rate (and none of them involve switching processors).
Negotiate
A high-risk merchant account is still a merchant account, which means everything except the interchange fees charged by the card networks is 100% negotiable.
Your processor is entitled to slightly higher margins on their markup due to the risk level of your business. But the markup definitely shouldn’t be 3-4x the interchange rate. Shoot for a markup around 100 to 150 basis points at the absolute max when you’re negotiating your rate.
Choose the Right Pricing Model
Flat-rate processing should be avoided for high-risk merchant accounts.
High-risk processors also love to offer tiered pricing models because it puts them in total control over how your transactions are categorized. They’ll dangle a low “qualified” rate in front of you to secure the contract, only to categorize the majority of your transactions as mid or non-qualified—resulting in much higher rates.
Instead, choose an interchange-plus model (even if the markup is higher than normal).
Prove Your Stability
This is tough to do when you’re just getting started. But after a year or two with a low chargeback ratio and maybe only a handful of fraudulent transactions (it can happen to anyone), you can ask your processor for additional underwriting on the account.
While you might still be a higher risk compared to other businesses, you can prove that your risk is lower compared to it was in the past.
Work With a Merchant Consultant
A merchant consultant can look at your statements and quickly tell you whether or not you’re getting a good rate on high-risk credit card processing. That’s because they work with all processors and businesses in nearly every industry, so they know exactly what a processor’s rock-bottom rate is on a high-risk account.
When you pick up the phone and ask your processor for a rate reduction, they’ll probably tell you you’re already getting the best deal. But when we pick up the phone and ask the same question, they can’t lie to us because we have statements from other businesses to back it up.
Final Thoughts
High-risk processing does come at a premium cost. That’s just the reality of operating in certain industries.
But you can still get a good rate on your high-risk merchant account. Aiming for around 4% total is solid for most merchants in this situation. So if your effective rate is higher than this, then you’re leaving money on the table.
Contact our team here at MCC to see how much you’re overpaying on high-risk processing. We’ll identify savings opportunities and negotiate a better rate directly with your processor, so you can save money without switching providers.