Plastic is now the most popular way to pay for items. According to a 2014 report by the consumer payments industry, 78 percent of purchases are made with a credit or debit card, with another 1 percent of people using gift cards and 2 percent using charge cards. Younger generations are increasingly more comfortable using cards than cash. Ecommerce sites almost exclusively use credit or debit cards, and very few businesses can survive without a credit card processing service.
However, not all credit card processors want to work with every business. Businesses in industries that are at high risk for fraud, chargebacks or service cancellations can have a hard time finding a processor. Still, there are some processors that accept high-risk clients and specialize in working with businesses in these industries. These high-risk credit card processors usually charge higher rates and fees, but if your business needs credit card processing, they may be your only option.
Which industries are high risk?
Each credit card processing company decides what it considers high risk. Some have tight guidelines, while other are more lenient. Because of this, unless you're in a well-known high-risk industry, such as adult entertainment, 800-chats and gambling, you should do some research to see if a mainstream credit card processor will take you. Here are some other industries that might need to find a high-risk credit card processing company:
• Adult services, including online dating
• Amazon, Yahoo or Google stores
• Auction houses
• Drug industries, including drug paraphernalia or pharmaceuticals
• Debt-related industries, such as debt repair or collection agencies
• How-to or self-help products and services
• Investment services, including brokerages
• Knock-off products
• Temporary lodgings like timeshares or vacation condos
• Travel services, including tour companies and travel clubs
• Off-shore corporations and international merchants not based in the U.S.
• Pawn shops
• Subscription services
• Vitamin sales, health supplies
• Weapon sales
What can a high-risk credit card processor do for you?
If your business is in any of these industries or has recently declared bankruptcy, or if you have bad credit, some mainstream credit card processors may not be willing to accept the risk of working with you. In such cases, a high-risk credit card processor may be your best bet for getting approved to accept credit cards. Like mainstream credit card processors, these services often include check and gift card processing services as well.
However, working with a high-risk credit card processing company comes at a cost. Because the processor takes a bigger risk to work with your business than others, it often charges you a higher percentage for each transaction, may charge more fees than mainstream processors and may require you to sign a three-year contract.
How can you decrease your risk?
Any time you look for a credit card processing company, you should do some research. You want to check out multiple services, including mainstream processors since some are less restrictive in their definition of high risk than others. Don’t feel pressured to sign up with the first service willing to take you. If your business is stable and profitable, you have some negotiating clout. Use it.
Once you've narrowed your options to your top choices, you want to requests contracts and read them carefully. This is especially important with high-risk credit card processing services because they know your options are limited, and they're more likely to require you to sign a lengthy contract. Look for early termination fees, sometimes called early deconversion fees, which allow the processor to charge you for canceling the service. You should be especially wary of contracts that mention liquidated damages, as they can be exorbitantly expensive to cancel. Discuss any fees you don’t understand, and if the processor offers to waive a fee, be sure to get a waiver or have the exception added to the contract.
Are high-risk credit card companies your business’s best friend?
The saying, “A friend in need is a friend indeed” may apply here. Businesses are increasingly dependent on credit card payments for income, so a reputable credit card processor is a necessity. If your business is considered high risk, however, your options can be limited. While high-risk credit card processing companies may charge more for their services, they provide you with the tools you need to accept credit cards, and that is a good thing, indeed.
Contributing author: Karina Fabian