As an e-commerce merchant, one of the most important and strategic decisions you have to make, outside of offering a highly-desirable product, is to choose your payment processor.
In order to take any type of card payment, you will need the services of a payment processor in order to accept and process these payments quickly and securely.
Since the pandemic, more consumers are doing their shopping entirely online and they expect to make these payments seamlessly, safely, and hassle-free. With so many players in the e-Commerce industry, it is fundamental that you choose a processor that can handle your payments while keeping your customers’ sensitive data information secure.
The Role Of A Payment Processor
So what, exactly, is the role of a payment processor? Payment processors essentially approve payments and process them for your e-Commerce store. It also takes these essential steps to ensure that the payments are safe:
1. Once the payment is initiated, the customer’s billing information and all other credit card data are validated.
2. It ensures that the appropriate amount of money is present in the account for payment.
3. It authorizes payment requests. After this step is completed, a confirmation number is generated.
4. Once it approves a transaction, the funds are first transferred to your merchant account and ultimately, to your bank account.
What If You Are A High-Risk Merchant?
As a high-risk merchant, your search for a payment processor will need to be more strategic. Traditional banks and payment processors are not keen on working with high-risk merchants. This mainly has to do with the risks involved with working with these types of businesses, mainly their higher incidences of chargebacks and fraud.
Although every payment provider is different, most providers will consider these types of businesses more prone to receiving chargebacks and experiencing fraud:
- Credit Repair/Counseling
- Online Casinos/Gaming
- Adult Entertainment, Dating Services
- Telemarketing, Calling Cards, VoIP
- Pharmaceuticals, Online Drug Providers
- Travel, Accommodations, Ticketing Agents
- Subscription Services (Magazines, Collectibles, etc.)
Expectations As A High-Risk Merchant
One of the many things to expect as a high-risk merchant account provider is the higher-than-average fees to acquire a high-risk merchant account. Here are some more aspects of opening a high-risk merchant account that you need to be aware of:
- Unreasonable rates and terms
It is quite common for providers to require higher fees and rates than their lower-risk counterparts. This is due to their desire to minimize their risk as much as possible. Their contracts can also be longer and more stringent for the same reason.
- Scammy practitioners
There are some bad actors that would like to take advantage of a high-risk merchant’s desperation to access payment processing services. Their prices tend to be exorbitant and contracts so unreasonable, making it difficult to escape. Always do your due diligence and research all providers. Go to the Better Business Bureau and find out what other merchants are saying. Get recommendations from your colleagues in the industry. Here, knowledge is power.
- Account reserves
Something else to keep in mind is that providers are always looking for ways to mitigate risk. One of the ways is via account reserves. To protect themselves, they may require one of these reserves as part of your agreement:
- Upfront reserves – Here the processor will hold onto all funds from credit card transactions until a reserve balance is reached.
- Rolling reserves – This is where the processor will withhold a percentage of your daily revenue, for a limited amount of time, giving back the money as other funds become available.
- Fixed (capped) reserves – Here, the acquirer holds onto funds up to a “predetermined reserve cap”. When the cap is reached, they will not hold additional funds until the reserve is completely tapped.
Choosing The Best Payment Processor
Now that you are aware of what the role of the payment processor is and how you can also find potentially bad players in the industry, it’s time to prepare for your search.
Remember that your payment processor is a “mediator” of sorts, moving your money securely from your customer’s bank account or credit card into your bank account. Choosing the best and most secure is a top priority. Here are some important elements to consider before you choose:
1. Cost-efficiency
It is tempting to seek the services of a payment processor that is the most affordable. But this is not the best quality to look for. The “you get what you pay for” adage certainly applies to finding the best payment processor.
Just know that there are costs involved with every transaction such as:
- Interchange – Your customer’s bank charges these fees.
- Markup – This is a percentage fee charged by the merchant bank.
- Assessment – This is a “pre-negotiated percentage fee” charged by credit card companies.
- Processing – The payment processor charges these fees.
Ultimately, your decision should be based on your value and volume of transactions. Also, look out for any hidden fees.
2. Fraud protection
This cannot be emphasized enough…fraud is everywhere. You must choose a provider that has all the tools and resources necessary to mitigate fraud. Any risky transactions should be flagged and stopped immediately. All data should be encrypted during the transaction and also if it is ultimately stored. Without all of these preventative measures, your business can be crippled financially.
3. Offer multiple forms of payment
When it comes to payment methods, customers have their preferences. There should be no restrictions from your provider when it comes to the type of payment method you want to offer your customers. This will boost your customer base, customer loyalty, and your bottom line.
Always Choose Wisely
Although there may be quite a few payment processors to choose from, go with the one that has a considerable amount of experience in the high-risk industry, and more preferably, your particular vertical. This will ensure that they have the knowledge and expertise to help you navigate any challenges that can come your way.