High risk payment processing refers to handling payments for businesses deemed high risk by financial institutions. These businesses typically face greater risks of chargebacks, fraud, and other financial issues. For such businesses, finding the right payment processing solution can be tricky and expensive.
In this article, we will dive into the various costs associated with high risk payment processing, and how businesses can manage these expenses effectively. Understanding these costs is crucial to running a business smoothly and maintaining profitability.
What is High Risk Payment Processing?
High risk payment processing is a specialized service provided to businesses operating in industries that are more prone to fraud, chargebacks, or other financial risks. Some examples of high-risk businesses include:
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E-commerce stores with high transaction volumes
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Online gambling and gaming platforms
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Subscription-based services
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Travel and ticketing businesses
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Tobacco and vape product sellers
These businesses often face higher charges due to the inherent risks involved. Financial institutions consider these businesses more likely to encounter disputes, fraud, and chargebacks, leading to additional costs for merchants.
Key Costs of High Risk Payment Processing
While the primary concern for businesses is the higher cost of processing payments, there are several other fees and charges to be aware of when using high risk payment processing services.
1. Higher Transaction Fees
One of the most significant costs for high-risk merchants is the higher transaction fees they have to pay. Payment processors charge these fees because of the increased risk associated with processing payments from businesses in high-risk industries.
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Flat transaction fee: This is the basic cost of each transaction processed. High-risk businesses tend to pay more per transaction than low-risk businesses.
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Percentage-based fees: Many payment processors charge a percentage of each sale, which can add up quickly, especially for businesses with high transaction volumes.
The fees vary from provider to provider, but typically high-risk businesses can expect to pay anywhere from 2.5% to 5% per transaction.
2. Setup and Monthly Fees
When businesses sign up for high risk payment processing, they often face higher setup and monthly fees. These fees are charged to cover the added administrative costs that come with processing high-risk transactions.
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Setup fees: These one-time charges can range from $100 to $500, depending on the provider.
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Monthly fees: These can vary widely but typically fall between $20 and $100 per month.
These costs are added to the overall processing fees and can be a significant burden for small or medium-sized businesses.
3. Chargeback Fees
Chargebacks are a primary concern for high-risk businesses. A chargeback occurs when a customer disputes a transaction, and the funds are returned to the customer, often at the merchant’s expense. Since high-risk businesses face a higher rate of chargebacks, payment processors charge extra fees for each chargeback.
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Chargeback fee: These fees can range from $15 to $100 per occurrence. In addition to the fee, businesses may also lose the revenue from the transaction itself.
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Chargeback prevention: Some payment processors offer chargeback prevention services for an additional fee. These services help businesses reduce the likelihood of chargebacks occurring by monitoring transactions and flagging suspicious activity.
Over time, chargebacks can add up, making it more expensive for businesses to process payments.
4. Reserve Fees
To protect themselves from potential financial losses, payment processors may require high-risk businesses to maintain a reserve account. This reserve is a percentage of the business’s total transaction volume, held by the processor, to cover any potential chargebacks or refunds.
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Percentage of revenue: Typically, the reserve amount can be anywhere from 5% to 20% of the total monthly transaction volume.
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Locked reserve: Some processors lock the reserve for several months to ensure that the funds are available in case of disputes.
While this can help protect both the business and the payment processor, it also limits the merchant’s cash flow.
5. Monthly Minimums
Some high-risk payment processors may also impose a monthly minimum charge. This means that even if a business does not process enough transactions to meet the minimum amount, they will still be required to pay that minimum fee.
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Monthly minimum: This could range from $10 to $500 per month, depending on the provider. If a business doesn’t meet the monthly minimum, they may still be required to pay the full fee.
This can be an extra burden for businesses that are still growing or experiencing fluctuations in transaction volume.
How Cathedral Can Help You Manage These Costs
Cathedral specializes in high risk payment processing, offering a range of solutions designed to help businesses save on fees, minimize risks, and maximize efficiency. By partnering with Cathedral, high-risk merchants can benefit from:
1. Competitive Transaction Rates
Cathedral understands the unique challenges high-risk businesses face, which is why we offer competitive rates for payment processing. We work with you to find a solution that minimizes costs and suits your business needs.
2. Transparent Fee Structure
We pride ourselves on our transparent fee structure. Unlike many other providers, we ensure there are no hidden charges or surprise fees, allowing you to budget more effectively for your payment processing needs.
3. Chargeback Management Solutions
At Cathedral, we provide chargeback management tools to help reduce the likelihood of chargebacks. We monitor transactions in real-time, identify potential risks, and offer fraud prevention measures to protect your business.
4. Flexible Payment Processing Solutions
Whether you’re operating a small e-commerce store or running a large-scale subscription service, Cathedral offers customized solutions that cater to your business size and transaction volume. We also offer flexible payment gateways and fraud detection systems to meet your specific needs.
Tips for Reducing Costs in High Risk Payment Processing
While the costs associated with high risk payment processing may seem daunting, there are several strategies businesses can use to reduce these expenses:
1. Improve Your Chargeback Management
Chargebacks are one of the most significant expenses for high-risk businesses. By proactively managing chargebacks, businesses can reduce the likelihood of incurring these costly fees.
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Monitor transactions: Use transaction monitoring tools to detect suspicious activity before it leads to a chargeback.
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Implement a clear return policy: A transparent return policy can help prevent customers from disputing transactions.
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Offer great customer service: Ensuring customers are satisfied with their purchases can reduce the chances of chargebacks.
2. Choose the Right Payment Processor
Selecting a reliable payment processor is crucial. Cathedral offers cost-effective solutions with lower transaction fees, lower setup charges, and transparent billing. Make sure to shop around and choose a processor that aligns with your business goals.
3. Negotiate Fees
If you’re working with a payment processor and facing high fees, it might be worth negotiating better terms. Cathedral works closely with merchants to ensure the rates and fees are fair and reasonable.
4. Implement Fraud Prevention Tools
Investing in fraud prevention tools can help you reduce the risk of fraudulent transactions, which can lower your overall processing costs.
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Use advanced fraud detection software: This helps identify suspicious transactions before they go through.
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Verify customer identities: Implement identity verification to prevent fraud before it affects your bottom line.
5. Monitor Your Payment Processing Costs Regularly
Keep an eye on your payment processing costs to ensure they stay within budget. By regularly reviewing your transaction statements, you can identify areas where you might be able to cut costs or switch to a more affordable provider.
Conclusion
Understanding the costs associated with high risk payment processing is essential for businesses in high-risk industries. While the fees can be higher than those of low-risk businesses, there are strategies and solutions available to help reduce these expenses. Cathedral is committed to providing businesses with the tools and support they need to manage their payment processing costs effectively and efficiently.
By choosing Cathedral as your payment processing partner, you can reduce your overall costs, improve your chargeback management, and benefit from transparent, competitive pricing that aligns with your business needs.
