Accepting credit, debit, and online payments is no longer a matter of convenience—it’s a matter of necessity in today’s economy. Unfortunately, certain businesses might find themselves facing an uphill battle to find and retain the merchant services of a payment processor. This could be due to the inherent nature of the business, the business owner’s credit score, or because there are too many chargebacks in its payment processing history.
Whatever the case may be, this business can still collect payments by working with a high-risk payment processor. However, as part of the application process, these service providers will need some additional information and documentation to conduct a thorough risk assessment. Here’s a checklist of what your business will need for the best high-risk payment processors.
High-Risk Payment Processing Checklist
- The Application
- Business Documentation
- Other Financial Statements
Let’s take a look at each category in more detail.
A high-risk credit card processor will have their own proprietary application for new customers. This application will request some basic information such as the business address, phone number, website URL, tax identification number, and email address. They will also likely ask for personal information from the business owners such as a personal address, phone number, email, and a driver’s license or passport to verify their identity.
You will need a copy of your articles of incorporation, business licenses, and any other relevant paperwork. If your business operates as an LLC, you will need to provide your articles of organization. It goes without saying that these important documents should probably be stored in a secure location like a safe or locked drawer.
However, if for whatever reason you cannot locate these documents, you can request copies from your state or city chamber of commerce. You can also save digital copies on our computer or a secure hard drive. You might also need to provide IRS Form SS-4, which verifies your Employer Identification Number, commonly known as an EIN.
High-risk payment processing companies may be satisfied with a letter from your bank that confirms your business name, bank account number, and routing number, accompanied by a statement from a bank official that your account is in good standing. The name, title, and signature of the official writing this letter will be required.
Other times, a high-risk payment processor may require a voided check. Either way, they will also likely request 3-6 months of recent bank account statements. If your business is very young or a startup, they may request to see 3-6 months of your personal bank statements.
Other Financial Paperwork
Get ready to show two years of business tax returns and possibly personal tax returns, especially if your business is a startup. You may also need to provide a balance sheet and profit and loss statement. If your business already has accepted credit and debit card payments in the past, it will need to show 3-6 months of processing history.
Make Sure All Your Ducks Are in a Row
Before submitting your application, make sure all your paperwork is in order and as accurate as possible. You do not want to falsify any information, even if you’ve already been turned down by a payment processor before.
If you misrepresent your business, a payment processor begins facilitating payments, and your misrepresentation is discovered, it can result in immediate termination—as well as being placed in the Terminated Merchant File or MATCH list. Once a merchant is on this list, it can be next to impossible to find another payment processor, even among high-risk merchant services, that is willing to work with them.
Some common document errors include the name on your bank statement not matching the name on other paperwork, such as the one used on the application. Or perhaps the bank address does not match the address you put down on the application. If the name and/or address on the voided check (if requested) does not match that on your application, that can also create problems.
You will also want to make sure that your signatures are consistent across your submitted documentation. If your business has moved and/or changed hands or seen a rotation in the ownership over the years, that can create some of the issues outlined above.
How to Improve Your Chances of Finding a High-Risk Processor
Just because your business will require a high-risk payment processor doesn’t mean you should throw in the towel. There is a whole range of payment processors that cater to high-risk businesses and a wide spectrum of fees and terms that range from favorable to lightly punitive. You want to improve your chances as much as possible by making your business look as risk-averse as possible. Here are a few things you can to do secure your reputation:
- Consider your business.
- Minimize your chargebacks.
- Connect with your customers.
- Improve your business credit.
- Secure the checkout process.
- Comply with industry regulations.
Consider your Business
The first thing you should do is take an honest examination of your business and determine whether or not it’s inherently a high-risk business. Gambling, online dating, cryptocurrency, gun sales, nutritional supplements, and credit repair services are just a few types of high-risk merchant accounts that are just inherently risky businesses.
For instance, gambling is a high-volume, fast transaction enterprise that makes it more difficult to catch fraudulent transactions, creating a high-risk processing situation. Online dating or adult content is a venue where unsuspecting individuals can be preyed upon by scammers. And credit repair services work with customers who have a history of not paying their bills on time.
If your business falls into any one of these categories, it will be labeled in the high-risk payment processing industry with a gray flag or red flag and there is no escaping that. There are, however, high-risk merchant payment gateway processors you can work with and even specialize in these industries.
Minimize Your Chargebacks
Certain business types are labeled high-risk industries because they experience a lot of chargebacks. A chargeback is the reversal of funds after a customer initiates a dispute with their credit card provider or bank. For better or worse, The Fair Credit Billing Act of 1974 created chargebacks as a way to protect consumers.
Unfortunately, it’s also become a convenient way for consumers to avoid paying for things, and sometimes even things they use. This so-called friendly fraud may account for as much as 70% of all credit card fraud, to the tune of $132 billion. The end result of a chargeback means a loss of inventory or services, a loss of the sale, and a fee on top of that from the payment processor, which may range from $15 to $150 and more.
Obviously, you want to minimize your chargebacks in the interest of your bottom line. But another reason you want to minimize chargebacks is to avoid being labeled for high-risk credit processing. And one of the best ways to minimize chargebacks is simply to stay in touch.
Connect With Your Customers
This brings us to our next point. The chargeback process is initiated by a customer contacting their bank or credit card company, going right over your head. A refund, by contrast, is issued by the merchant when the customer contacts them directly. For the business owner, refunds and their fees vary from payment processor to payment processor. Paypal, for instance, will not reimburse you for the payment processing costs you lose. But even the ones that don’t return your fees or charge you new fees are not going to charge you as much as chargeback costs.
Considering that the chargeback process involves cutting one party out (you) in favor of the middleman, it makes sense to invest more effort in connecting with your customers to avoid situations like this entirely. Having contact information (phone number and email) prominently displayed on your website encourages your customer to reach out to you directly.
But sending them periodic emails and having a social media presence can put you in their mind even when you’re not in front of their eyes. That way, they will contact you instead of their bank or credit card company, helping you eliminate a significant portion of chargebacks by converting them into refunds, or perhaps even salvaging the sale with a little troubleshooting.
Improve Your Business Credit
Another reason that a business gets labeled for high-risk credit card processing is that the business itself has poor credit. If your business has filed for bankruptcy or regularly defaults on its debt obligations, that will certainly impact your credit score; payment processors will view the business itself as inherently risky, regardless of its industry.
Paying your bills on time, working with lenders to offer collateral for loans, and keeping your credit utilization ratio below 15% are all good ways to build up your business credit. If any outstanding debts went to collections, request that they pay to delete them, which means they will be removed from the business’ credit report.
In fact, poor credit is one of the top reasons a business looking to accept credit and debit cards will be denied merchant services. Keep in mind that in some cases, your own personal credit history may play a role in the assessment of your business.
Secure The Checkout Process
If one of the payment methods facilitating purchases is card-not-present, there are a few steps you can take even before setting up a contract with a payment service. One is to get an SSL certificate for your website. The SSL badge shows that the connection between the browser and your website is encrypted and secure. It sends a signal to consumers and payment processors that you are handling sensitive information properly.
For brick-and-mortar businesses in high-risk industries, high-risk payment gateways in the USA may have rules and regulations varying by state that must be adhered to at the time of a sale. Especially in certain industries like gun sales, gambling, and alcohol sales. Whether you accept payments online, in person, or both ways, make sure that your checkout process is secure and compliant with the law.
Comply With Industry Regulations
One of the most basic regulations across all industries is PCI Compliance. Payment Card Industry Compliance outlines some required best practices to make sure that sensitive financial information is safely transmitted and securely stored anytime a translation occurs.
A few items on this checklist include:
- clearly presenting terms and conditions at the checkout
- a visible display of a customer support number
- a functional and up-to-date firewall
- encrypted transmission across public networks
- anti-virus software
- regularly tested security systems and processes
- a working policy to maintain information security
Other compliance regulations are based on industry and location. Cannabis, firearms, alcohol, and gambling are just a few examples of businesses that have different rules and regulations in every state. Make sure you are adhering to federal, state, and local guidelines.
Can You Eliminate Your Red Flags Entirely?
There are no federal standards for what makes a business considered high-risk. There are, however, industry standards. The tips discussed above are a good way to work on presenting your business as secure, established, and responsible.
But even so, the nature of your business, the credit history of your business, and even your own credit history (especially if you operate as a sole proprietor) can impact your reputation. Failure to adhere to federal, state, and even local procedures and regulations can put a red flag over your business as well.
And even if your business has all its ducks in a row but has no established history, payment processors may be reluctant to work with you. In all these cases, it’s time to find a high-risk payment processor so that you can get on with accepting payments. You may not be able to entirely eliminate red flags—especially if your business is in certain industries—but you can keep them in check and find a reasonable arrangement with a good payment processor.
Keep in mind that a high-risk processor is going to need to have information about your business. In fact, high-risk merchant processors will need a little more information than usual, to offset the risk they are taking. Consult the above checklist to make sure you have this information in order.