High Risk Credit Card Processing
Not all businesses can apply for credit card processing services through the local bank branch or merchant services provider. Sometimes merchants will have a business that requires special handling or have problems of their own that will prevent them from being approved for a general merchant account. It is at these times when the services from high risk credit card processing companies are needed.
While most merchant services companies claim to be able to work with most industries, the truth is that most are not able to handle high risk merchant account processing. Using banks that specialize in high risk businesses and industries is the only way for merchants to be set up with reliable merchant services.
What is High Risk Credit Card Processing?
Acceptance of any type of bank card, regardless if it is a debit or credit card falls under the generalization of credit card processing. The reason this is the case is that both types of bank cards utilize the same card networks. Debit cards differ from credit cards in that funds from debit transactions are taken directly from the customer's bank account while credit card transactions rely on the banks issuing a line of revolving credit.
The payment card networks, owned and operated by companies such as Visa and MasterCard, license access to their networks to a variety of different banking institutions. This grants the different card issuers a secure means for payment information to be transferred from the merchant to the card-issuing bank.
Ways to Accept Credit Cards
Credit cards can be accepted locally at the retail location by swiping their card in a credit card terminal or Point-of-Sales (POS) system. These systems can either be wired or wireless depending on the type of terminal that the merchant is using.
Sales that occur online are secured through a payment gateway that links the merchant's website shopping cart to the payment card network. Similar to how a retail transaction is processed, an online transaction requires an additional step to ensure that the payment card information is securely transferred from the website to the card network.
MOTO transactions, sales originating through a phone call or even a postal order can be input manually through a credit card terminal. Terminals that are used to manually accept payments can either be a physical system installed in a storefront or online through a payment gateway as a virtual terminal.
How Credit Card Processing works
Accepting payment using a payment card, whether credit or debit, requires a number of different institutions to be involved to authorize a transaction. Businesses that are approved for a merchant account can access the payment card network using any one of the card acceptance methods.
Organizations involved in a Credit Card Transaction
- Merchant Acquirer
- Payment Card Network
- Card Issuing Bank
When a business applies for a merchant account, they being by filling out an application with either a payment processor or a merchant acquirer. Many times these organizations are the same, providing businesses with access to the payment card network. The acquirer underwrites the merchant's application, determining the risk of the business while providing ongoing support during the merchant account relationship.
When an authorization request is sent from the merchant through the merchant acquirer, it is received by the payment card network. The network consists of different members including Visa and MasterCard along with other companies that operate their own systems. Payment card account information received at the network is unpackaged from its secure file and the customer acquiring bank is determined. At this point, the details of the authorization request are sent to the card issuer for approval or denial.
The card issuing bank is also part of the payment card network, receiving authorization requests sent to them from the payment card organizations by their customers. Once a request is received by the card issuer, a number of different security, fraud, and account checks are performed to verify the transaction prior to rendering a decision. Verifying user's address for AVS, checking against their prior purchasing trends, and finally confirming the available credit will all factor into the authorization requests approval. Once approved, a response will be sent through the payment card network to the merchant location.
At the conclusion of the day, the merchant sends out a final transaction, summarizing the day's sales and that is used to request funds from the various card-issuing banks. This batch report will finalize any adjustments, such as tips or credits that could have changed after the initial authorization request.
This entire process takes a matter of a few seconds, but it is very impressive when it is understood how much goes into approving an authorization request.
Credit Card Processing Online
Merchants that are operating high risk businesses online will also need to use the services of a payment gateway to accept bank card information from customers. For high risk merchants, credit card processing online can be a challenge because of their corporate location or the industry they are involved in. Having the ability to accept payments online for goods or services that can be delivered remotely or over the internet is one of the only ways these offshore merchants can operate.
In order to accept these payments over the internet, the merchant needs to have a website set up with a shopping cart that will allow customers to initiate purchases. This method of accepting payments as a high-risk merchant can be done through a payment gateway.
Many high risk payment processors offer payment gateway solutions that can help merchants domestically and offshore to set up their merchant services. Nearly all payment gateways are designed to be safe and secure for customers entering their payment card information. The PCI-DSS standard for website security is the industry standard, using a non-PCI compliant gateway can be risky for merchants accepting payments.
Other Types of High-Risk Payment Processing
Accepting credit or debit cards online is not the only way merchants can receive payments. Different forms of payments that use other functions of our financial system exist today. While they are not generally as accepted as credit or debit card payments, they do provide an alternative when payment cards are not available.
Alternative Payment Methods Include
- Check Processing
- ACH Processing
In many instances, businesses might not be able to set up a credit card processing merchant account. Working with alternative payment methods such as electronic checks or ACH can be a very effective way to circumvent the payment card industry.
The use of electronic checks is common in higher risk industries where payment cards are not available. As the requirements and restrictions seem to increase every year on merchants, more and more businesses experience difficulty running their businesses. It is also common when merchants are unable to obtain a traditional credit card merchant services account due to prior financial problems that deem them ineligible for a merchant account.
Not all instances of electronic check or ACH services are due to problems with the credit card networks. Some merchants have opted to build their businesses around high risk echeck processing because the fees are generally lower and the requirements for chargebacks are higher than credit cards. The use of electronic check payments has become increasingly popular with merchants using subscriptions as their billing model, opening the door to a simplified and more consistent means to collecting payments from customers.
Common High Risk Industries
A number of business types are unable to use the typical merchant services set up through a local bank or payment processor. These companies need to enlist the services of a merchant services provider that has the ability to set up medium to higher risk businesses.
The Most Common Higher Risk Industries Include
- Adult Credit Card Processing
- Alcohol Credit Card Processing
- Continuity Credit Card Processing
- Firearms Credit Card Processing
- Tobacco Credit Card Processing
- e Cigarette Credit Card Processing
- Smoke Shop Credit Card Processing
- Hookah Credit Card Processing
- CBD Credit Card Processing
- Travel Credit Card Processing
- Tech Support Credit Card Processing
- Pharmacy Credit Card Processing
- Nutraceutical Credit Card Processing
- Kratom Credit Card Processing
- SARMs Credit Card Processing
- Peptides Credit Card Processing
- Drug Paraphernalia Credit Card Processing
Many of these businesses will be considered to be restricted by most payment processors and acquiring banks. Businesses such as tobacco and e-cigarettes are generally considered to be low risk when operating through a retail storefront but will be prohibited from online sales. Other industries, such as Kratom and SARMs are restricted on a federal level, making it difficult for the payment card companies to transfer funds without legal repercussions.
Required Merchant Account Documents
Most underwriters working with higher risk industries will require similar supporting documents from merchants to complete the underwriting KYC process. Some of the most common items to include in an application package include:
- Completed Merchant Application
- Copy of Government ID
- Local or Federal Licenses (if business requires)
- Past Payment Processing Statements
- Past Checking Account Statements
To expedite the application process, merchants will want to provide underwriters with a full and complete package upon initial application. Having an application filled out completely and correctly can help speed up the application process by preventing unnecessary delays.
Underwriters working on merchant account applications will also need to verify the identity of the applicant. By providing a copy of a government ID, underwriters can perform their KYC checks to eliminate the risk of any losses or potential frauds.
Some of the higher risk industries are heavily regulated by local and federal government agencies. This means that any violations can result in large fines or other consequences, something that many payment processors will not want to risk. For many of these industries, merchants are required to be registered or licensed in order to operate. If this is the case, it is important for merchants to include copies of all documents pertaining to their licensing to show underwriters they are in full compliance to sell the regulated products.
Merchants and businesses that are currently processing transactions and have statements to show their recent history should include the last few months to the underwriters. This is also the case for businesses with current checking accounts, the most recent statements should be provided. The underwriters will want to see how the business operates with both its sales and capital reserves. A solid processing history and sufficient reserves will usually be the information needed by banks to grant a new merchant account.
Start Accepting Payments Today!
Merchants operating in industries that require a high risk payment processor are encouraged to contact the team at Allied Payments. Our simple application process with multiple payment processing options can help you start accepting payments quickly.
Our extensive network of banks and payment processors allow us the unique ability to accept a multitude of businesses. Whether your company operates in one of the high risk industries or you require the services of an offshore merchant account, we can help. Contact us today.