High risk credit card processing costs more than basic payment processing.
But just because you have a high risk merchant account, it doesn’t give your processor a right to price gouge you. And unfortunately, that’s often the case that we find when we’re auditing high risk merchant accounts for our clients.
The good news is that you can still get a good rate for high risk credit card processing without switching providers.
Read on to find out how.
Why High Risk Payment Processing Costs More
Some merchant accounts are classified as “high risk” because there’s a higher probability of chargebacks or fraud.
- Certain industries are automatically considered high-risk (CBD, gambling, adult entertainment, vapes, etc.)
- Merchant accounts with a high chargeback rate history.
- Businesses with a history of processing lots of fraudulent transactions.
- Business owners with bad credit.
- Merchants on the TMF/MATCH list.
Regardless of the reason, your payment processor takes on additional risk by processing these transactions.
When a customer files a chargeback or disputes a fraudulent transaction processed by your business, the card issuing bank immediately releases those funds back to the cardholder, which they get from the acquiring bank (your payment processor). And now your payment processor has to recoup those funds from you.
Payment processors have to factor all of this into their underwriting procedure when setting up your merchant account. The higher the risk, the higher your rates will be, which is often justified (to an extent) in high risk processing.
Why You’re Probably Overpaying for a High Risk Merchant Account
The problem with high risk payment processing is the same problem with traditional credit card processing. Acquiring banks, payment processors, and merchant account providers — they’re all greedy.
I don’t care who your processor is or what type of account you have. I can promise you that they’re doing whatever they can to ensure you’re paying as much as possible.
That’s just the name of the game.
But with high-risk payment processing, it’s even more egregious because processors use the “high risk” leverage against you.
You know, and they know, that it costs more to process payments through your high risk merchant account. And they’re banking on the fact that you won’t question your higher-than-normal rate, especially if you can’t get a traditional merchant account from another provider.
This can lead to high-risk merchants paying effective rates as high as 5%, 6%, or even 7%, when you should be paying closer to 3.5%.
You get onboarded for a high rate on day one, and once you factor in the hidden fees and rate increases down the road, you could be paying double what you initially expected.
10 Insider Tips for High Risk Merchants (That Processors Don’t Want You to Know)
In order for your business to stop overpaying on high risk credit card processing, the first thing you need to do is recognize that the deck is stacked against you. The payment processing industry is unregulated, and processors use every trick in the book to pad their margins at your expense.
If you have a high-risk merchant account, you can use these industry secrets to your advantage when dealing with your processor.
One of these tips alone may not necessarily make a huge difference. But when combined, you can literally save tens of thousands of dollars every year (or every month, depending on your volume).
1). Your Rate is Still Negotiable
I can’t emphasize this enough. If you only take away one lesson from reading this guide, let it be this: Your rate is negotiable.
Too many high risk merchants simply accept the high rates offered by processors because they don’t realize how high the markup is.
The interchange rates imposed by the card networks rarely change for high risk merchant account categories. This means that your processor is passing through rates as low as 1.45% + $0.10 per transaction and charging you 4.5% for the privilege.
That gives them over 300 basis points of margin. You could slash your rates by a full percentage point and they’d still be making an absolute killing on your account.
So get on the phone and start negotiating a better rate.
2). High-Risk Processors Charge Bogus Fees That You Shouldn’t be Paying
The rate you pay each time you process a payment is just one portion of your effective rate. This is another deceptive trick that’s used by high risk processors to pad their margins.
They’ll tell you something like “you’ll only pay 3% per transaction” but that 3% doesn’t account for the potentially dozens of other junk fees they’re adding to your account.
Some of which can drive your effective rate as high as 5% or more.
Most high-risk merchant accounts we audit have bogus fees that end up adding another percentage point to the merchant’s effective rate. That’s an extra $10k for every million dollars you process. All from bogus fees.
We’ve even found thousands of dollars in risk assessment fees charged to merchant accounts that weren’t high risk. High-risk businesses pay even more.
3). Rate Increases Are Arbitrary and Shouldn’t Happen Frequently on High-Risk Accounts
Here’s another one that affects every high-risk merchant account at some point.
When you first get onboarded with your payment processor, you accept a high rate knowing that it’s above average because of your high-risk scenario. But it’s a rate that you can live with and still earn decent margins.
Now six months later, a year later, two years later — whatever the case might be, you’re hit with a rate increase. Maybe it’s 20 basis points or maybe it’s 50 basis points. Then you’re hit with another 30 basis-point increase a year after that.
Before you know it, you’re paying nearly double what you signed up for.
Here’s the kicker. There’s really no reason for high-risk processors to increase your rates because their profits are already sky-high.
They increase your rates just to see what they can get away with. But if you push back hard enough, they’ll keep your rates the same (and potentially lower them).
4). High-Risk Payment Processing Isn’t Always Permanent
You don’t have to be stuck with a high-risk merchant account forever.
Even if your business operates in an industry that’s automatically flagged as high risk by your provider, you can get lower rates by proving that you actually aren’t that risky.
Your processor might still label you as “high risk” on paper, but that doesn’t mean you need to keep paying high processing fees.
If you can show 12-24 months of clean processing history with minimal disputes, you have legitimate grounds to request substantially lower rates.
Push for a rate reduction based on your actual performance (not just your industry classification).
5). You Don’t Have to Switch Providers to Save Money on High Risk Credit Card Processing
Another thing that most high-risk merchants don’t realize is that switching processors is often more hassle than it’s worth, and you usually don’t end up getting lower rates.
And the switching process for high-risk accounts is a nightmare.
You’ve got new applications, new underwriting, potential account holds, application headaches, and the very real risk that you’ll get denied and left scrambling for a solution.
Your current processor knows this, and they’re counting on the fact that you’ll just accept their inflated rates rather than going through the hassle of switching.
But here’s the secret. Your existing processor would much rather keep you as a customer at a lower rate than lose you entirely.
All you have to do is negotiate. In most cases, they’ll lower your rates just to keep your business, and you avoid all the headaches of switching.
6). Owning Your Equipment Outright is Cheaper Than Renting
If you’re renting your credit card terminal or POS equipment from your processor, then you’re throwing away money every single month.
$50 per month per device is $600 annually for something that costs maybe $250 to buy outright.
That’s an extra $1,550 paid per device over three years. And you still don’t even own the machine.
High-risk processors love equipment rentals because it’s pure profit with minimal effort on their end. They’ll tell you renting is more convenient or that it includes “free replacements” or “free maintenance” but that’s all just a smoke screen for a massive markup.
As a high risk merchant, you’re already overpaying to accept payments. Don’t overpay on your equipment, too.
7). Long-Term Contracts Aren’t in Your Best Interest
The only time it makes sense to sign a long-term contract in payment processing is if you’re getting a really good rate.
I’m talking somewhere in the range of 5-10 basis points over the interchange rate. Maybe closer to 20 basis points if you have a complicated need or integration.
But this is literally never the case with high-risk processing. Your provider wants to lock you into multiple years of paying 4-5% because it’s a homerun for them.
Plus, multi-year contracts often come with hefty early termination penalties that can cost you thousands. And if your contract has a liquidated damages clause, it’s nearly impossible to cancel.
While we rarely recommend switching processors, high-risk merchants should always have the flexibility to keep their options open in the event that a new processor won’t slap them with the same high-risk tag.
8). Reducing Your Risks and Lower Your Rates
If you’ve gone 24 months with a chargeback ratio of 0.5% in an industry where 1.5% is considered to be excessive, contact your processor and talk about those accomplishments.
There’s no reason for them to keep charging you the same high rate, and your history should prove that.
You can also take other steps to reduce your risk level in the eyes of your processor.
For example, let’s say you sell CBD and vape products both in-person and online. For online orders picked up in store, you can wait to process the cards until the time of the pickup, as card-present sales carry less risk than CNP sales. Avoiding manually keying cards over the phone is another way to lower your risk.
Once you’ve established that you’re not actually risky, ask your processor to do another round of underwriting on your account.
9). Flat-Rate and Tiered Pricing Contracts Will Bleed You Dry
Another deceptive tactic used by high-risk merchant account providers is convincing you that flat-rate pricing is a good deal.
They’re wrong (and they know it). This is only a good deal for them.
Tiered contracts are arguably worse. They’ll lure you in with a “qualified processing rate” that’s too good to be true. But few (if any) of your transactions will qualify for this.
You’ll end up paying mid or non-qualified rates for 90% of your transactions, which could be upwards of 100-200 basis points higher than the non-qualified offer.
Do yourself a favor and get on an interchange-plus pricing plan. While your markup will be higher as a high-risk merchant, this is still the cheapest way to accept credit cards, and it’s the best way for you to negotiate down the road.
10). Get Everything in Writing
Unfortunately, you can’t trust whatever your sales rep or customer service agent tells you on the phone.
I can’t tell you how many times we’ve heard this story from a business we’re working with. “Well the guy on the phone told us…”
They can tell you that your processing is going to be free on the phone but if it says 5% in your contract, guess what? You’re going to pay 5%.
We’ve even found instances where a processor doesn’t hold up their end of the contract. If they’re willing to violate your contract, then trust me, they’re definitely willing to break whatever was promised to you over the phone.
This holds true when you’re first signing up for high risk processing and when you’re negotiating better terms.
Stop Overpaying for High Risk Payment Processing Today
Look, you’re going to pay a bit more to process payments if you have a high risk merchant account.
But there’s a huge difference between paying more and overpaying.
Paying more means maybe your effective rate is 3.5% instead of 2.75%. It doesn’t give your processor a right to steal, charging you rates as high as 5% or 6% to accept a credit card. That’s crazy.
Take the tips I’ve given you above and use them to leverage a lower rate with your provider.
Better yet, let us handle it for you.
Our team at MCC can audit your statements for free, identify savings opportunities and bogus fees, then negotiate everything directly with your current high-risk processor. No switching involved.
We’ll even continue to monitor your statements after we get you a rate reduction to ensure your processor is holding up their end of the deal.
Get a free audit to find out how much you can save today.