Credit card processing may seem simple on paper, but it’s actually quite complex, especially for high-risk merchants. In addition to being subjected to stringent terms and conditions, high-risk merchants also have to deal with high rates of chargebacks, fraud, and regulatory compliance issues. As a result, these merchants have to be vigilant when it comes to credit card processing to avoid losing revenue or getting in trouble with the law.
Fortunately, high-risk merchants can adopt certain best practices to overcome these challenges and safeguard their financial stability. These best practices involve a wide variety of strategies and measures ideally designed to mitigate risks, ensure secure payment processing, and maintain regulatory compliance with the respective industry laws and regulations.
This article will provide an in-depth review of what high-risk credit card processing is and the best high-risk credit card processing practices you can adopt to enhance your credit card processing operations and minimize the risk of financial loss and legal trouble.
High-risk credit card processing basically refers to the acceptance and handling of card transactions of businesses operating in industries associated with a higher risk of chargebacks, fraud, and financial instability.
Traditional banks and merchant account providers are well aware of these high-risk industries and refuse to work with them. These high-risk industries include credit repair, the adult industry, online gaming, firearms, nutraceuticals, CBD and cannabis, dating services, sports betting, and many others.
Fortunately, some payment providers specialize in serving high-risk industries. These providers usually accept the greater risk of exposure to chargebacks and fraudulent transactions in exchange for higher payment processing fees. Some of these high-risk credit processors include Shark Processing, PaymentCloud, Soar Payments, PayKings, Durango Merchant Services, and Host Merchant Services.
The following are some of the best practices high-risk merchants should adopt to minimize the risk of chargebacks and fraudulent transactions, optimizing their credit card processing operations:
Choosing the right credit card processor is vital for all high-risk merchants. Start by conducting thorough research and comparing the available options. You want to ensure you partner with a payment processor with a proven record in the high-risk credit card processing space. The payment processor should also have years of experience and expertise working with high-risk accounts in your respective industry.
Before partnering with any high-risk credit card processor, you ought to consider several factors, including underwriting criteria, pricing, scalability, payout timelines, customer support, reputation, and many others. By considering these factors, you’ll be able to land a high-risk credit card processor that aligns with your unique business needs.
High-risk industries are prone to fraudulent transactions. Therefore, high-risk merchants should implement robust fraud detection systems to help identify and prevent fraudulent activities. For example, high-risk merchants may utilize machine learning (ML) algorithms and models to learn from historical data and detect suspicious patterns that may indicate fraudulent activities.
These merchants may also use biometric software to authenticate users with the help of facial recognition, fingerprints, or even voice recognition. Additionally, high-risk businesses can rely on behavioral analytics to track and analyze transaction data for the purpose of identifying and preventing fraudulent activities.
Chargebacks are undoubtedly one of the biggest problems facing high-risk credit card processing. They usually result in lost revenue for the merchant, potential penalties for the credit card processor, and higher operational costs. In some cases, credit card processors may even drop merchants that have too many chargebacks.
That said, high-risk merchants should take the necessary steps to minimize the number of chargebacks, including improving customer service, displaying detailed product descriptions, and addressing product-related issues. They may also consider adopting a chargeback alert system so that they can resolve disputes even before a chargeback is initiated.
Regulatory compliance is vital for merchants operating in high-risk industries. High-risk merchants should stay up to date with the latest industry regulations and remain compliant with local, national, and international laws.
If a high-risk merchant processes, transmits, and stores credit/debit card data, they must comply with the Payment Card Industry Data Security Standard (PCI-DSS). The best way to remain PCI-compliant is by never seeing or accessing your customers’ card data at any point.
In addition to PCI compliance, you should also adhere to Know Your Customer (KYC) protocols, Anti-Money Laundering (AML) regulations, and regulatory compliance standards relevant to your industry.
As a high-risk merchant account holder, it’s important to have a secure website for your business to prevent customer data exploitation and improve Search Engine Optimization (SEO) ranking. Fortunately, high-risk merchants can take several steps to keep their business websites secure. For example, they can regularly update their website, Content Management System (CMS), and plugins to ensure security vulnerabilities are patched at all times.
High-risk merchants may also require their customers to use strong and unique passwords to access their accounts as opposed to combinations of names and birthdays. This will help ensure that only legitimate customers can access and use the business website. Additionally, you can use a firewall to protect your business website and CMS from unauthorized access and even block suspicious traffic.
3D Secure 2 (3DS2) is an authentication method ideally designed to authenticate credit/debit card transactions. It serves as an additional layer of security meant to protect high-risk merchants and customers from fraudulent activities. The 3DS2 security protocol basically includes an additional authentication step in the checkout process where the customer is prompted to provide more information before completing a purchase.
For example, the security protocol may send a one-time password (OTP) to the customer’s mobile phone or require them to provide biometric data, such as a fingerprint, voice recognition, or even facial recognition. However, since the 3DS2 security protocol adds an extra step in the checkout process, it may result in a less user-friendly experience for the customer. Therefore, it’s highly recommended that high-risk merchants use this security protocol only when they need to lower the rate of fraudulent transactions.
One of the main reasons behind the increasing rate of chargebacks among various high-risk merchant accounts is unclear sales policies. By educating your customers about your various sales policies, you’ll be able to minimize the number of chargebacks, reduce operational costs, and remain in good standing with the high-risk credit card processor.
That said, it’s important to clearly state your business’s refund policy on the website to avoid disputes in the future. It’s also highly recommended to include your refund and return policy in the Terms and Conditions section where customers can easily read it.
When it comes to high-risk credit card processing, checking the details provided by the customer during a given transaction will go a long way in preventing fraudulent transactions. Consider using the Address Verification Service (AVS) provided by the high-risk credit card processor to compare the IP address of the customer to the credit card’s billing address. This is the best way to ensure that the customer is the cardholder.
Data encryption and secure connections are important when it comes to high-risk credit card processing. As a result, high-risk merchants should only use secure payment gateways that encrypt customer data and protect it against breaches.
Whenever a customer buys a product online, sensitive information such as the credit card number, Card Verification Value (CVV) code, and expiration date are transmitted over the internet. If this data is not encrypted, it can easily fall into the wrong hands and be used for fraudulent activities.
Transport Layer Security (TLS) and Secure Sockets Layer (SSL) protocols help authenticate data when surfing the internet. These protocols usually secure the communication between the customer’s browser and your business website’s server. They ensure that sensitive card information is transmitted securely and not intercepted by anyone else besides the intended recipient.
Additionally, TLS and SSL protocols also secure the website server to prevent man-in-the-middle (MITM) attacks. This ensures that the customer is communicating directly with your business website and not an attacker impersonating your business.
Payment tokenization refers to the process of replacing sensitive credit/debit card information with a string of randomly generated characters, known as a token. This token can then be used to process card transactions without revealing, transmitting, or storing sensitive credit/debit card information.
During high-risk credit card processing, network tokens can also be used to combat fraudulent transactions. Network tokenization usually works similarly to payment tokenization. The only difference is that it’s the card issuers that generate network tokens and not the acquirer or payment processor. This makes network tokenization more suitable for a wide range of uses in the payment processing setting than payment tokenization.
In addition to making high-risk credit card processing more secure, tokenization also improves customer service and increases conversion rates. This is because customers do not have to enter their payment information for subscription and recurring payments.
When operating a high-risk business, it’s important to maintain transparency and communication with your customers. Ensure you clearly state your terms and conditions, prices, and any applicable restrictions so that there are no surprises. Proactively addressing product-related issues will help build trust with your customers and minimize the number of chargebacks.
You may also consider offering after-sales support in the form of a follow-up email or phone call to know if a customer is happy with their purchase.
As a high-risk business owner, it’s important to train your employees on what secure high-risk credit card processing entails and how to handle sensitive customer data. In doing so, you ensure that your customers will be able to recognize and respond to fraudulent activities promptly before any significant damage happens.
You should also develop best practices and procedures for secure credit card processing and ensure that all your employees understand and follow them at all times.
Building a secure high-risk credit card processing system requires time and hard work. By adopting the above best high-risk credit card processing practices and consulting experts in the field, you’ll be better positioned to attain long-term success.
However, it’s worth noting that this will only be possible if you partner with the right high-risk credit card processor and remain compliant with industry laws and regulations.
