High-Risk Merchant Account Fees

High-risk merchant account fees are as complex as they are important to understand.

Unfortunately, many business owners don’t know what a high-risk rate is or why they would end up with one in the first place. The good news is that we’re here to help you understand how this process works and all the factors that can lead to high-risk merchant account fees.

To be successful, high-risk merchant accounts need to sustain a higher risk margin. This is largely due because the nature of these types of businesses often necessitates an additional level of scrutiny and oversight on behalf of both the bank and credit card issuer when it comes to making decisions about issuing cards for that type of industry.

Therefore, if you have been exploring this topic already, then there’s no doubt you were made aware that costs associated with running your high-risk account are going to be much greater than what they would otherwise likely incur within a regular business environment – but why?

Financial institutions and payment processors are not always your friend. While they may be willing to take on the risks of processing payments for you, this is mainly because it’s a lucrative line of business that can make them money in several ways if something goes wrong. They won’t stop there as their incentive will only increase when dealing with an entity that has increased risk levels due to higher transaction volume or other issues such as cybersecurity threats.

For example, if hackers breach your bank account information (which isn’t unheard-of), then while banks have certain protections against fraudulent transactions by customers thanks to Federal regulations like Regulation E – which states they must reimburse any customer whose deposited funds were stolen from his/her account within ten days after being notified about the event.

Not all payment processors turn away high-risk merchants, and in fact, some specialize only in these kinds of businesses. That being said, before finalizing your decision about which provider you’re going to work with for the long run, make sure that they explain thoroughly what fees and costs will be associated once a merchant account is set up–this way, you can tell if this kind of service suits your needs or not from the start.

High-Risk Merchant Account Set-Up & Onboarding

Set-Up

A business’s payment processor will have a lot of say in what your “set-up fee associated with setting up your merchant account” actually is. It can run upwards of $2000 or higher, so it’s important to read the contract carefully before signing anything and remember that competitive pricing options are available for those willing to explore other providers!

Onboarding

Visa and Mastercard charge $500 for registration, which is initially covered by your payment processor but will most likely end up being charged to you. This fee needs to be paid every year in order to maintain the account. Amex does not have a set annual cost like Visa or Mastercard; however, they do require that merchants pay an upfront non-refundable application of at least ten thousand dollars if their average monthly volume exceeds fifty thousand transactions per month over any three consecutive months.

Amex also has other fees such as credit card purchase fee (1%), late transaction processing fees ($35 each), declined authorization service charges ($15 each). In addition, you may have noticed that Visa and Mastercard require you to pay the $500 renewal fee every year.

To avoid the hefty fees and registration requirements, make sure to check which Merchant Category Codes (MCCs) Visa deems as high risk. If you’re not on their list, then you won’t have to worry about paying any special costs or applying for a costly approval process in order to accept payments with your payment processor of choice. So if that’s all clear, we can go ahead and share some tips on how best to secure your account so that it falls under these categories:

When registering for an account through most providers today — whether they be reputable ones like PayPal or startups such as Stripe—you’ll typically need Social Security Number verification before moving forward with opening up a new business.

High-Risk Merchant Account Fees, Costs and Rates

Flat-Rate Merchant Account Pricing

​ With this pricing model, you’ll pay a fixed percentage plus per-transaction fees. You won’t have any surprises when it comes to what your fee is going to be like month over time since there’s only one line on your statement, and everything gets rolled up into that same “price.”

This may lead people who are processing more than $1M worth of transactions each year in their business to find themselves paying as much as 3% or 4%+ without knowing so due to not looking at different plans beforehand where they could’ve saved money with flat rates based off volume tiers. With these types of models, though, there will always be some drawbacks. For example, if you’re processing millions of dollars per month, you might be able to discuss a discounted rate before you sign up for this pricing structure.

Tiered Merchant Account Pricing

This is a common pricing strategy used by providers to charge customers for every transaction they process. There are two issues with this model: first, the payment processor decides which transactions get classified as risky and second, these extra costs could be passed on to you to make more profit from those high-risk transactions.

The payment processor decides which transactions are considered high risk and charge more. This could steer them to tag more transactions as high-risk to charge you a higher fee for processing them, but there is an easy way around this! As with any other business contract, don’t sign on the dotted line until all of your questions have been answered so that you know what’s going into every deal.

The tiered transactions can be classified into three categories:

Qualified Rate: 

Transactions that fit in this rate class are classified as very low risk and will be priced as such, as they meet all of the provider’s requirements. An example would be a payment made via a physical terminal using a standard credit card or debit card for goods under $1k. 

Mid-Qualified Rate: 

Transactions that get placed in this tier don’t meet all of the provider’s requirements but can still qualify depending on their level of risk associated with fraud (higher than qualified transactions). Examples include phone order/direct mail orders where there is an opportunity to present one’s valid photo ID at the time o purchase, which meets our security standards–in these cases you.

Non-Qualified Rate:

You can’t make it as a qualified or mid-qualified transaction, so you have to pay the highest processing fees. That means signature card transactions, ecommerce transactions and reward cards are all nonqualifying types of financial purchases that will let you pay for these high service costs.

Interchange-Plus

Typical structure: interchange + % + $ / transaction

As a high-risk merchant, if you process sums over 5,000 euro per month, it can help to know how your payment processor is slicing out their percentage for themselves. Online merchants looking for more transparency when negotiating fees should take note that every time they process a transaction, the output tone of voice will be different depending on which pricing model is being used. This may seem like an inconvenience, but at least you’ll be aware.

If you’re the type of person who pays a different amount each time they swipe their card, then this pricing model might be right for you. That way, at least your company has a better understanding of how much it will cost them to process transactions.

Subscription

Typical structure: interchange + 0% + $ / transaction

The subscription pricing model is simply an updated version of the Interchange Plus model. First, you’ll have to pay a monthly subscription fee and then you’ll be offered a fixed per-transaction fee with no fluctuations in processing volume.

This pricing model would work best for high-risk merchants who process large volumes but do not often fluctuate their processing volume as much.

This pricing structure is not always the best option for high-risk merchants. The payment processor will often charge you extra for “high-risk” transactions to make more profit from these types of purchases. These fees can be passed onto the customer as well, so it’s important to understand what each deal entails before signing on that dotted line! There are three categories: Qualified Rate (low risk), Mid-Qualified Rate (medium risk) and Non-Qualified Rate (highest risk).

In a tiered transaction model like this one, your processing rates would depend on which tier your transactions fall into. You’ll notice at first glance that the qualified rate has the lowest percentage while the non-qualified rate has the highest fee per transaction.

Blended vs. Pass-Through

For high-risk merchant accounts, the key difference in pricing models lies in what happens to interchange fees. Suppose they are itemized and charged separately from your payment processor’s markup. In that case, you will be offered a “pass-through” pricing model – meaning that any costs can just go through without change or deduction aside from possible transaction banking charges. However, if these rates blend with your payment processor’s markup, then it is considered a blended rate which may leave some of this cost up for negotiation between yourself and the company providing processing services for you on behalf (high risk)

High-Risk Merchant Account Fees

To ensure that you are always on the right side of your payment processor, find a company with pricing models to best match your business needs.

How much time and money will end up costing your company depends largely on which provider is chosen for high-risk merchant account fees. These costs also vary from each other because they calculate their service rates differently than others do! 

While reading through this list of common high-risk charges below, remember that both parties can negotiate what makes them happy in order to come out satisfied at the end.

Refund Fees

Your merchant account is critical for your business. So you should be taking every step necessary to protect it and ensure that you are not doing anything which might jeopardize its performance in the long run, especially when there’s a variety of options out on the market today for payment processors—almost all of them designed with safeguards against fraudsters who want nothing more than to get close enough to steal from small businesses like yours.

Without one provider handling everything related payments (including processing customer refunds), you could end up paying excessive fees or being charged inflated rates for transactions even though those charges will vary depending on how much risk each processor assesses your business as posing at any given time.

At Zenti, we do everything we can to help our customers prevent refunds.

Luckily, this kind of scenario isn’t as common as you might think. That’s why it’s so important to choose a credit card payment processor only once you’ve conducted some thorough research into what they offer and how much it will cost.

Thankfully, however, the scenario described above isn’t rare and can be avoided with some careful preparation before signing any agreements; many processors are willing to refund your original transaction fee if an error occurs on their end. It’s just important to check first to avoid such difficulties down the line! After all, there are plenty of ways for dealing with costs associated with refunds according to whichever suits your needs best: either out-of-pocket or by charging back from issuers like Visa® or MasterCard®.

Of course, there are a few other things to consider when choosing the right payment processor. For example, some processors may be happy to refund you for any fees incurred if your transaction is canceled or voided by an error on their side. That way, even though it can sometimes cost more money upfront than with another option – do enough research, and in time it will pay off as they’ll graciously repay you upfront.

The possible scenarios vary and can sometimes result from a long line of companies having to cover costs on their ends. For example, payment processors may have to deal with some expenses that were because of the acquiring bank, or maybe they’re asking you, the merchant, to pay so that they can reduce the risk associated with processing your returns.

Customer returns are a part of doing business. Every time we make a purchase, there is always some type of fee that can be associated with it. The same principle should also apply to refunds, and the refund process doesn’t have to come at no cost for you or your customers.

When looking into processors, search high and low until you find one where payment processing fees will not affect either side of the transaction (including any additional associated charges). If this isn’t an option, consider charging each customer who requests a refund an appropriate service charge, so both parties are satisfied when all business has been concluded.

PCI Compliance Fees & Services

How PCI compliance costs are calculated is rife with uncertainty. For example, the cost can vary depending on whether the company offers it as a service, and if they do offer this- will you be charged for it?

The thing that makes calculating these prices such a hassle is the lack of transparency offered by providers themselves and how difficult or easy each provider’s system might make access to their price list.

Some companies like to keep those numbers close to their chest, while others prefer an upfront pricing model where all information regarding fees is readily available from day one; however, even then, there remains some confusion about what exactly “upfront” means here. In addition, of course, every organization has different rules when deciding who should pay upfront vs. at the time of purchase.

Fees

Let’s review a few common scenarios to give you a better picture.

The payment processor has PCI compliance services, and you are charged.

By far, this is the most popular model providers use because it’s easy to set up with your current providers like Stripe or PayPal that already offer this service as a part of their payment processing packages. Under this approach, these companies will help you maintain compliance in exchange for charging something relatively small each month (around $200-300). This type of program can be helpful if they’re affordable for what they do – which would depend on your needs!

Your payment processor doesn’t offer PCI compliance services, and you’re not charged for them. 

This means that becoming and remaining compliant is entirely your responsibility.

This type of approach is best for experienced high-risk merchants who don’t mind taking care of this issue independently by following our step-by-step process outlined in detail here on how you can avoid costly fines or worse.

The payment processor has PCI compliance services, and you’re not charged a fee.

This is the most merchant-friendly fee formula of the items listed here. Your payment processor has taken steps to ensure that they provide a secure environment for their product; one in which each transaction meets all requirements set forth under PCI (Payment Card Industry) Compliance standards without compromising speed or performance on your website’s checkout page experience as well.

All while providing an intuitive user interface to be easily managed from anywhere at any time via any device — such as a desktop computer or laptop/tablet hybrid devices.

The payment doesn’t offer PCI compliance services, and you are charged a fee.

Yes, you read that right. Under this approach, most payment processors have no interest in offering any security to protect their customers’ sensitive data. Still, they want a cut of the action for doing nothing at all! That’s insane. So basically, they charge them hefty fees while not giving anything back. So then, what’s stopping these shady companies from collecting money without even providing service?

While you might think that PCI compliance is just a small, unavoidable cost of doing business in the digital age, it’s one of the most sneaky and underhanded practices out there. The lack of regulation means merchants are more likely to get duped into paying for services they don’t need or want – as such, we recommend taking extra care with those providers who try this tactic on their customers.

This is why the PCI Compliance fee, which you may be charged either monthly or annually depending on your provider’s preference, should not scare away merchants from working with certain providers. Most payment processors prefer to charge the annual rate for this particular service to keep things simple and easy to manage; however, it doesn’t always make sense given how most small businesses operate their finances. As a result, staying off these kinds of platforms will only put you at risk later when something inevitably goes wrong rather than if trouble pops up earlier down the line.

It’s not always clear what the best choice is. For example, paying an annual PCI compliance fee could mean lower monthly high-risk merchant account fees. Still, if you close your account before the year is up and have already paid for that period of time during which it won’t be in use, then a refund will likely elude you since there are no guarantees on when or how much they’ll pay back to you.

Paying the PCI compliance fee annually may just end up with higher non-compliance costs down the road. Most importantly because if we decide to stop using our service early (with only one month left) without getting any kind of reimbursement, then who knows whether this company would even bother paying us back?

Businesses that want to keep up with the high PCI compliance standards can be faced with annual fees. For those merchants who prefer multiyear contracts, providers will charge an average of $120 for one year’s worth of service, and if you go monthly instead, there are processors out there willing to offer it on a month-to-month basis as well.

Compliance costs seem like an enormous headache, but they don’t have to be. The worst part is that these fees are usually only disclosed after the processor has won a customer over with their service offerings and can charge for them at will. But you know what? That doesn’t mean we just give up on unreasonable compliance costs altogether!

The best way to avoid sticker shock when it comes time to pay your monthly processing fee or other cost allocation method (discretionary surcharges) is by discussing our PCI Compliance Cost in advance of any contract signing times. Hence, there isn’t confusion about how much more money you’ll need per month. 

This means no running around trying to figure out who was right- whether it’s $5,000 per month or $5 per month.

Services

If you’ve ever been duped into thinking that once a merchant pays for PCI compliance services, they won’t have to lift another finger. Unfortunately, this just isn’t the case. If your payment provider offers a full range of PCI compliance services, then they may help take care of more technical aspects; however, if not – be prepared to do some heavy lifting on your own.

Merchants often wrongly assure that once they have paid their payment processor, they will not need to lift a finger when it comes to being compliant with security best practices. Unfortunately, this is just not how things work in this department. If your provider offers a full assortment of services, including technical support on achieving compliance, then these could come in handy too.

Here is a list of the most common PCI compliance services offered by most payment processors:

Customer Education & Support

If you want to avoid all the hassle of handling PCI compliance, then your payment processor should offer an array of support services. This includes a comprehensive knowledge database that educates customers on security requirements and immediate notifications if any issues are detected so they can be resolved quickly.

As a high-risk merchant, you want to be mindful of the risks associated with accepting credit card payments. The more noble and trustworthy payment processors are providing increased protection for their customers through better compliance solutions that will cost less in the long run, like EMV chip cards or tokenization services at no additional charge.

The best way to reduce your PCI DSS requirements is by contacting any of these providers to learn how they can help you get compliant as quickly as possible without breaking your budget!

If they send you a two-page PDF with some best practices… run for the hills. Don’t look back… just run!

Security Monitoring

This is what it means when you are PCI compliant. You know that the last thing your customers want to hear is their account being compromised, and so do they, which may lead them to go elsewhere for similar services if they cannot trust you with theirs.

By hiring a PCI-compliant service provider, you can bypass the costly task of constantly monitoring your security. By holding up to very strict standards in terms of technical and physical systems architecture review (PCI DSS), they will maintain all necessary certifications required for processing credit card transactions on behalf of companies like yours. This ensures high levels of safety when it comes to protecting sensitive customer data from potential vulnerabilities through cyber-attacks or other nefarious activities which may occur over the web today.

If this is something you want, but you don’t have time to do it yourself, then please contact us! We’ll be happy to help with providing these services at an affordable price so that what’s important—your bottom line––won’t suffer due to added fees related only.

Insurance Coverage

If your chosen payment processor provides insurance coverage for data breaches as part of the PCI compliance service fee, great! In such a case, you’ll be reimbursed if any losses or claims result from data breaches. However, keep in mind that this type of insurance is regulated and subject to certain exclusions; therefore, it might not cover your claim.

So, even though this might seem like an unneeded cost because you can’t be guaranteed 100% coverage, it’s still better than not having any insurance whatsoever. To be honest, it seems like a worthwhile investment, especially since your monthly premiums are usually under $20/month!

Chargeback Fees

The chargeback has become a form of friendly fraud since the law doesn’t protect merchants. Honestly, check out these chargeback statistics!

Since the chargeback was invented, many customers abuse their power. Friendly fraud results in a false transaction where a customer files for a chargeback without having any legitimate reason to do so. Unfortunately, these law-abiding merchants are guilty until proven innocent by exhausting all options available, including video evidence of what happened during the shipment, which can be time-consuming and expensive.

We’ve all had the experience of accidentally sending a customer their order twice: once by mistake and then again because we wanted to make sure they got it. It’s an understandable error (especially when your hands are full), but one that can be very costly if you’re not careful!

And while processing chargebacks is never fun for anyone involved, there are steps you can take both before and after in case this unfortunate event happens to your business too. 

I’ll go over them briefly, so here goes- firstly, as soon as something like this occurs with any kind of frequency or regularity, it should set off warning bells – don’t wait until more than two orders have been sent out incorrectly; secondly/ thirdly etc., handle it immediately.

So, not only is it important to win as many chargeback disputes as you can, but we’d recommend doing a bit more. Consider proactively trying to reduce your chargeback rate so you won’t end up losing money that you’ll never be able to get back.

How much? The answer isn’t straightforward since this can vary significantly depending on the situation and reflects what services are offered by either processor or acquiring bank – they take responsibility for how much of an impact these will have in terms of lessening any losses accrued from future transactions.

The best way to avoid chargeback fees is by choosing a high-risk merchant account option.

If you’re an online store owner or an entrepreneur, your business may be considered at-risk for fraudulent activity and poor customer service. This means that the higher level of security offered with these accounts will protect you from steep charges like this!

These merchants can expect $20-$50 on average per chargeback if they’re not classified as “high risk,” but you should expect to pay more as a high-risk merchant.

Yes, friendly fraud can leave a bad taste in your mouth. It’s the process through which one of our customers disputes their purchase with us claiming that they never received it or you delivered an inferior product, for example. Unfortunately, we’re left to accept their word on the truth behind what occurred without any other evidence as proof to rely upon. The result is a chargeback against our company money lost from the disputed transaction, reducing profit margins overall.

In the face of a high chargeback rate, merchants need to take an active stance. Suppose you want your business to survive and thrive in these tough economic times. In that case, it’s more important than ever before that you handle any potential problems swiftly and efficiently when they arise.

For example, don’t be afraid to contact customers who have returned purchases or canceled their transactions after purchase for clarification if necessary; make sure all customer issues are handled as soon as possible so there is no chance for negative feedback on what could potentially become a very damaging account status with increased monitoring costs from delays like this.

As a business operator, it’s important to be aware of the risks that come with accepting credit cards. For example, if you partner up with a payment processor and can’t help reduce your chargeback dispute win rate or lower the amount of friendly fraud in your business, this will put you at risk of making less money than before.

Chargeback Reserve Fees

A reserve can be thought of as an insurance policy for the acquiring bank. For example, if a customer decides to chargeback their purchase, that money is used towards reimbursing them instead of taking it out of your account’s profits (the last thing you want). In practice, though, reserves are rarely accessed or needed unless there’s been a transaction dispute; they act like escrow funds in protecting banks from any financial losses when working with high-risk merchants.

High-risk merchant account reserve fees are assessed based on your business’s creditworthiness. In addition, high-risk merchant account reserve fees can be calculated depending on the type of processor you have chosen to work with.

There are three types of reserves:

Rolling Reserves

To manage a company’s finances, the merchant’s bank account must have adequate funds in reserve. This protects them against unforeseen events like cash flow problems or when they incur too much debt on their credit card terminals. One way that this can be achieved is through Rolling Reserve – holding back some money from each deposit and only releasing small amounts at a time “on-demand.” Doing so assures merchants that there are always sufficient funds available should something go wrong with their accounts receivable process (such as not receiving payments) or other factors beyond their control like natural disasters, which might damage inventory storage facilities where goods were stored until sold.

Up-Front Reserves

When you sign an agreement with a business, it is necessary to have enough money in reserve. The amount of funding for this will be determined based on your projected monthly processing volume, and there are several ways to cover the cost:

provide an official letter of credit from your bank, transfer funds from another account, or enable the acquirer (business) to withhold all transaction deposits until the required balance has been reached.

Capped Reserves

This type of reserve is usually applied for a predetermined amount you’d like to have in your account and takes the percentage from each transaction processed. So, for example, if this was set at $4k on an average month with, say, ten transactions per day (totaling 4,000), then it would take 40 cents off every card swipe until that goal has been reached.

There are some caveats, though: these funds will not be paid monthly as rolling reserves do, but rather they’ll remain in the fund indefinitely so long until your merchant agreement expires; there’s also no guarantee how much money will accumulate over time due to fluctuations such as business volume or rates changing which may cause more withdrawals than deposits- essentially making reserving useless unless used.

Termination Fees

If you terminate your merchant account contract before the end date specified in the agreement, be prepared for an Early Termination Fee (EFT). This type of fee is calculated as compensation for the processor’s expenses that they’ll have to incur due to terminating your contract.

There are two common termination fee types, which are the flat cancellation fee and liquidated damages.

Flat Fee

The cancellation fee is a small price to pay for the freedom that comes with canceling your merchant account. Not only will you save money on monthly fees, but also processing rates and other hidden charges as well!

The time it takes to get set up varies depending on what type of business you run and how many transactions per month are processed through your account. But in most cases, setting up an account should take no more than a few days (in most cases) or so after submitting all the necessary paperwork… and if there’s any confusion about anything at all, just give your high-risk credit card processing company a call immediately. They’re always happy to answer questions. (Note: Zenti loves to help our customers in every way we can… but we can’t confirm the level of support you’ll get from other high-risk merchant account providers.

Liquidated Damages

Liquidated damages type of cancellation fees can be very expensive. Suppose you have signed a contract with your provider that stipulates this. In that case, it is important to pay attention and make sure the kind of fee they charge for canceling will not end up costing more than simply paying the processing cost over time in increments as agreed upon from when you first began service.

If you signed a contract with your payment processor which stipulates liquidated damages, know that this could end up costing quite a bit of money. For example, imagine signing on for three years and deciding to cancel after just one year – in such case, you would be penalized by paying fees equal to two years’ worth of processing costs as a penalty.

If the language doesn’t stress important points or sound professional, do your best to change how information is presented.

Terminating a contract is never easy. This especially rings true when it comes to high-risk merchant accounts. Expensive processing agreements like EFTs can leave you with an unwelcome fee if terminated before the end of your agreement. That’s why having access to other payment processors who won’t charge this penalty makes sense for those looking for more flexibility in their business decisions and how they handle refunds or fees associated with canceling contracts early on.

Contracts can be tricky to read, ya know? Not only do they have a lot of legal jargon that makes it hard for people to understand what we’re getting into when signing them. But then there are some clauses in contracts where even if I could tell what was going on, my eyes would just give up out of exhaustion by the time I got done reading through all those words. Ok, that’s a bit dramatic… but who loves auditing long contracts? Exactly.

Luckily enough, though, one thing most contract authors will include is explaining any fees or penalties associated with breaking your end of the agreement early. So instead of trying (and probably failing) to decipher complicated lawyer-speak without Google Translate at hand; go back over your documents and make sure you find section titles such as

High-risk businesses are challenging but not impossible to manage. The best solution would be to find the perfect payments processor that can provide you with a merchant account and won’t charge an ETF (early termination fee). And yes, we know it may seem easier said than done when so many payment processors out there specialize in high-risk credit card processing.

But, if you search hard enough and assess all the elements that will make up your high-risk merchant account, certain processors offer fairly priced merchant accounts and processing services.

Hint: Zenti is one of those companies with fair and transparent pricing.