High Risk Merchant Account Fees & Costs — Everything You Need to Know
If you’re looking to set up a high risk merchant account there are certain things you should know — especially when it comes to high risk industry fees and costs.
If you already started exploring this topic, you’ve likely been made aware that the costs associated with running your high risk merchant account are going to be much higher than if you were operating a regular business.
Why is that?
Well, that’s because your business can put banks and payment processors at risk. As such, many of them are going to do everything they can to turn your cooperation into pure profit — especially since in case something goes wrong on your end, they’ll end up having to pay the price.
Remember, it’s the payment processor who is liable for any issues that may occur as a result of your increased transactional risks, not you.
In fact, transactional risks are the main reason why so many payment processors turn high risk merchants away without agreeing to run their accounts.
Not to worry though, as there are payment processors out there who will not only agree to set up a high risk merchant account for you, but who actually specialize in servicing the high risk industry.
That being said, before making your final choice regarding which payment provider you’re going to work with, learn all you can about what kinds of fees and costs you can expect to be paying once you set up your high risk merchant account.
Getting acquainted with a variety of common high risk merchant account fees and costs will help you maneuver your way into a better deal and avoid unwelcome surprises.
Table of Contents
- First Thing’s First — Set-Up & Registration
- High Risk Merchant Account Pricing Models
- High Risk Merchant Account Fees
Once your provider decides to onboard you as one of their high risk merchants, you’ll have to pay a fee associated with setting up your merchant account.
Beware that this kind of fee can run you upwards of a couple thousand, which is why it’s incredibly important to read your contract carefully. Note, however, that certain payment processors may waive or reduce set-up fees to render themselves more competitive on the market.
Either way, it’s always a good idea to talk to your payment processor about price customization options.
Once you’ve set up your account, your processor will need to register you as a high risk merchant so that you can start accepting Visa, Mastercard, Amex, etc., payments.
Visa and Mastercard both charge $500 for registration. This cost is initially covered by your payment processor, but they will most likely end up charging you with it, so take that into account.
It’s also worth noting that, unfortunately, Visa and Mastercard require that you pay the $500 every year to renew your registration with them.
Just make sure to check which Merchant Category Codes (MCCs) Visa deems as high risk, because if you’re not on their list, you won’t have to apply for special registration or pay the associated fees. And that’s even if your payment processor doesn’t agree with their categorization.
So, taking all of this into account, you can expect to pay $1,000 per year to cover registration and annual renewal costs — in addition to the other per-transaction rates and fees you’ll have to cover.
This pricing model will have you pay a fixed percentage and fixed per-transaction fee. Its main benefit is its predictability, and its main drawback is its potential priciness — since, the more you process per month, the more you’ll end up paying.
But, some providers may agree to give you a better flat-rate deal once you reach a certain processing volume — talk to them about discount options before you sign up for this model.
Within this pricing model, your provider will group the various interchange fees and categorize them according to how much transactional risk they carry.
The problem with this pricing strategy is that it’s the payment processor who gets to decide which transactions get classified as risky, (and to what extent). This could lead them to place more transactions in the high risk category to be able to charge you more for processing them.
Generally, tiered transactions can be placed in one of these three common categories:
- Qualified Rate
The transactions that land in this tier are classified as very low risk and will be priced accordingly, as they meet all of the provider’s requirements. An example of such a transaction would be a payment made via a physical terminal using a standard credit card.
- Mid-Qualified Rate
Transactions which get placed in this tier don’t meet all of the provider’s requirements, as they’re associated with a higher risk of fraud, and will cost you more than qualified transactions. An example of such a transaction would be phone or direct mail order transactions during which the credit card isn’t physically present.
- Non-Qualified Rate
These types of transactions don’t make it into either the qualified or the mid-qualified tier and, as such, will have you pay the highest processing fees. Examples of such transactions would be signature card transactions, e-commerce transactions, or reward card transactions.
Typical structure: interchange + % + $ / transaction
If your payment processor offers this pricing model, take note that you’ll be paying a different amount every time you process a transaction. However, at least you’ll be aware how large of a percentage your provider is slicing out for themselves.
This pricing model is best for high risk merchants who process sums over 5,000 euro a month.
Typical structure: interchange + 0% + $ / transaction
The subscription pricing model is essentially an updated version of the Interchange Plus model. What happens here is that, firstly, you’ll have to pay a monthly subscription fee and then you’ll be offered a fixed per-transaction fee, which you’ll have to pay in addition to the applicable interchange rate fee.
This pricing model would be best for a high risk merchant with a high processing volume, which doesn’t often fluctuate.
Blended vs. Pass-Through
Overall, remember that the key difference to be aware of in terms of pricing models lies in what happens to interchange fees.
If they are itemized and charged separately from your payment processor’s markup, your high risk merchant account and its operations will be changed in-line with the “pass-through” pricing model.
And, in a situation where interchange fees are blended with your payment processor’s markup, you’re being offered a blended pricing model.
Take a look at this pricing model overview.
High Risk Merchant Account Pricing Models
|Pricing Model||Recommended For|
|Flat-Rate||Blended||Low processing volume|
|Interchange-Plus||Pass-Through||Most business models|
|Subscription||Pass-Through||High processing volume|
So, to ensure that you won’t end up overpaying for payment processing, look for a provider who offers pricing models that best match your business’s specific needs.
High Risk Merchant Account Fees
How much your high risk merchant account fees will end up costing you depends largely on your payment processor. These fees will also likely vary, as each provider calculates their service costs differently.
While reading through the list of the most common high risk merchant account fees below, remember that you can always try to negotiate with your chosen provider so that both of you will be satisfied with the deal.
Having a trusted payment processor is essential to ensuring that your high risk merchant account runs as smoothly and economically as possible.
If you’re not working with a single provider to handle your business operations you might be putting yourself at risk of being overcharged for processing payments as well as refunding transactions.
Certain processors can be quite unrelenting when it comes to covering costs associated with customer refunds.
Imagine this scenario — first you pay a 2.5% fee to process your customer’s card payment, then your customer decides to make a return (as many customers often do, which is perfectly normal and expected), and then when you try to reimburse your customer for the returned item you don’t get your 2.5% fee back and you have to pay an additional 2.5% fee to give your customer back their money.
Seems unfair, doesn’t it?
Unfortunately, this kind of scenario isn’t as uncommon as you might think — which is why it’s important to choose a payment processor only once you’ve conducted thorough research into what they offer and how much it will cost.
Thankfully, however, the situation described above isn’t ubiquitous and can be avoided, as some payment processors will agree to refund you the original transaction fees. It’s just important to check if this is the case before you sign a contract.
In fact, there are a great many ways to handle costs associated with the refunding process, according to which you may or may not receive a refund for the processing fees.
The possible scenarios vary and can sometimes be the result of a long chain of parties having to cover costs on their ends. For instance, payment processors may have to deal with expenses originally incurred by the acquiring bank, or maybe they’re asking you to pay so that they can reduce the general risk associated with processing returns.
In the end, everything comes down to business, and processing returns is a part of doing business. Looking at the issue from this perspective, it suddenly doesn’t seem so surprising that there could very well be certain fees associated with the refunding process — as payment processors and other financial partners want to make money too.
If you still haven’t found a payment processor you’re confident about working with, the refund fee is an important factor to consider but, by no means is it the only thing you should consider.
There are a number of other types of fees it’d be wise to assess before making your final decision. To get a better picture, take a look at some of the other most common high risk merchant account fees covered below.
PCI Compliance Fees & Services
If there’s one thing you can almost surely count on is that every provider calculates PCI compliance costs differently.
The costs associated with this can vary depending on a couple of variables. The first one being whether your provider even has PCI compliance as a part of their service offer and, secondly, in the instance where they do offer PCI compliance — do they or do they not choose to charge you for it.
Let’s consider a few of the most common scenarios:
- The processor offers PCI compliance services, and you are charged.
This is the most popular model used by providers. Under this approach, your payment processor offers PCI compliance services, and makes you pay for them. In exchange for paying this fee, they will help you maintain compliance.
If you find that the service fee is fairly priced and will help you run your operations more securely, then this type of approach could prove helpful along the way.
2. The processor doesn’t offer PCI compliances services, and you are not charged.
This approach is simple enough. Your payment processor doesn’t offer any PCI compliance services, and you don’t have to pay for them. This means that becoming and remaining PCI compliant is entirely your responsibility and will only be achieved through your own effort.
This type of approach is best suited to experienced high risk merchants who don’t mind having to take care of this issue independently.
3. The processor offers PCI compliance services, and you are not charged.
This is by far the most merchant-friendly fee model of the ones listed here. In line with this approach, your payment processor offers PCI compliance services, but doesn’t make you pay for them.
Or, at least, they don’t list this service as an additional, separate fee. Just be aware that they most likely add it to your monthly account fee anyway — they just don’t explicitly exclaim that they do so.
4. The processor doesn’t offer PCI compliance services, and you are charged.
Yes, you read that right. Under this approach, your payment processor doesn’t offer any PCI compliances services, but you still have to pay for them. So, essentially, they charge you a PCI compliance fee, but don’t help you maintain compliance — meaning that you end up paying a completely unwarranted fee for nothing.
Worst of all, there are no laws regulating what you get in return for paying this particular fee, which makes this situation more common than you think. As such, we’d recommend staying as far away from these kinds of providers as you can.
In the case that your provider charges a PCI compliance fee, you’ll either be charged on an annual or monthly basis.
Note that the majority of payment processors tend to favor the annual payment model, but this approach isn’t always the best choice for merchants.
Even though paying the PCI compliance fee on an annual basis could mean that you’ll end up paying lower monthly high risk merchant account fees, you could end up losing a bit of money in the long run.
For instance, if you decide to close your account before the year is up and you’ve already paid your annual PCI compliance fee, you likely won’t be refunded for the remaining months of the year during which you won’t be using the service any longer.
In general, providers who prefer that merchants sign multiyear contracts will charge an annual PCI compliance fee. Whereas, processors who offer the monthly billing option, will most likely charge you on a monthly basis.
And, in terms of the sum you’ll have to pay, even though this can vary significantly amongst providers, the industry average high risk merchant account fees for PCI compliances oscillate at about $120 / year.
As previously mentioned, this sum can be discreetly blended with your monthly account fee or some other cost, which is why it’s important to discuss PCI compliance costs — and actual services rendered — before you sign anything.
Especially since not many processors will readily disclose this information before they’ve made a paying customer out of you.
So, as we established above — if you’ll be paying a PCI compliance fee, you should make sure to get your money’s worth.
Merchants sometimes wrongfully assure that once they pay their payment processor for PCI compliance services then that’s it, they won’t have to lift a finger. Unfortunately, that’s just not how things go in this department.
If your provider offers a full range of PCI compliance services then it’s possible that they’ll help you take care of the more technical aspects of this matter. However, at the very least, you’ll still have to fill out the Self-Assessment Questionnaire and remember to keep it up-to-date.
Nevertheless, below you’ll find a list of the most common PCI compliance services offered by payment processors:
- Customer Education & Support
This service may seem vague, but don’t be mistaken — it’s amongst the most important. As such, if your payment processor offers “customer education and support” as part of their PCI compliance service, you could expect to take advantage of:
So, now that you have a sense of what the more noble and trustworthy payment processors offer to their high risk merchant customers, don’t settle for less and talk to your chosen provider about getting the most out of the PCI compliance service.
A bare-bones FAQ is not what you should be after.
- Security Monitoring
This is what PCI compliance is all about — keeping your account secure. When you communicate to your customers that your business is PCI compliant, they expect the airtight security associated with this label.
If your payment processor is charging a PCI compliance fee, they better be providing this service as part of their offer.
PCI compliance security services should thoroughly check every part of your processing system, — i.e. website, payment gateway, card terminals, server, etc., — for viruses, malware and any other potential threats.
To remain PCI compliant, your system must be scanned at least once per quarter. Some providers will even offer to do this once a month, helping you stay up-to-date with all your security requirements on an ongoing basis.
- Insurance Coverage
If your chosen payment processor offers insurance coverage as part of the PCI compliance service fee — great! In such a case, you’ll be reimbursed for any losses or claims resulting from data breaches during which your customers’ data was either lost or stolen.
Do note, however, that this kind of insurance is subject to regulatory limits and operates within a frame of certain exclusions — meaning that your insurer might not agree to cover your data breach claim.
So, even though this may seem like an unnecessary cost because you can’t be guaranteed coverage, it still beats not having any insurance whatsoever. As such, it seems like a worthwhile investment, especially since insurance coverage costs aren’t typically very high. In fact, some are even as low as $15 / month.
The chargeback was invented to protect customers in situations where they never received the product they purchased, it arrived in an unacceptable state, etc.
However, since it was instated, many customers learned to abuse this system, resulting in the prevalence of so-called friendly fraud, (where one files for a chargeback without having a legitimate reason to do so).
And, unfortunately, the law with regards to this is not on the merchants’ side, as they are considered guilty until they’re able to prove their innocence. So, as things stand, chargeback fees and customer refunds will be automatically subtracted from your account — no ifs, ands, or buts.
The important thing to note is that you aren’t powerless in the face of such situations. You can — and should — fight back by disputing your customers’ chargeback claims.
Because, remember: once a chargeback has been filed, you’ll never get your money back. Even if you win the chargeback dispute later, fees assessed by the acquiring bank are non-refundable.
So, not only is it important to try your best to win as many chargeback disputes as possible, but we’d recommend going a step further — consider proactively trying to lower your chargeback rate so you won’t end up losing money that you’ll never be able to get back.
How much money, you may wonder.
Well, the answer to that question isn’t so straightforward, since this can vary significantly depending on the situation. The decision regarding how much this is going to amount to lies in the processor’s and the acquiring bank’s hands, and reflects the type of services you offer.
Chargeback fees for regular merchants usually come in at around $20-50 per chargeback — but, as a high risk merchant, you can expect to pay much more than this.
Even if, at first, these fees don’t seem excessively high, they can add up quite quickly, becoming a real dam in your revenue stream.
The 2016 True Cost of Fraud study finds that merchants will lose an average of $2.40 per $1.00 as a result of chargebacks (i.e. friendly fraud). That number increased by 8% between 2015-2016 so, it’s safe to assume that this percentage is much greater in 2020.
And, even if a merchant manages to successfully dispute the majority of chargebacks, resulting from friendly fraud, their occurrence still leaves an unfortunate stain on the merchant’s reputation. This is because acquiring banks keep a close eye on high risk merchants whose chargeback rates are disconcertingly high, going as far as adding them to special monitoring programs.
This is relevant as it not only affects your good name, but is also likely going to result in additional fees. If your business gets placed in the monitoring program, you’ll be asked to pay an ongoing fee and your chargeback mitigation plan might be subject to review, which is also something you’ll have to pay for.
And even though regular merchants sometimes receive a fee-free period before they become subject to monitoring, as a high risk merchant you shouldn’t consider yourself so lucky.
A high chargeback rate can also contribute to spikes in your processing fees and your high risk merchant account being frozen, or even entirely shut down.
This is why it’s so important to take a proactive stance in the face of chargebacks. When deciding on partnering up with a payment processor, discuss whether they’ll be able to help you reduce your chargeback dispute win rate and lower the amount of friendly fraud in your business.
Chargeback Reserve Fees
A reserve can be thought of as a security deposit for the acquiring bank, as it’s meant to protect them from potential risks associated with servicing your high risk merchant account.
In practice, reserve funds aren’t accessed or used unless the customer files a chargeback, in which case they could be used to reimburse the customer for their purchase.
The merchant account reserve functions like an escrow fund, in that, it helps guarantee that the acquiring bank doesn’t suffer any financial loss.
In terms of the high risk merchant account reserve fees, they are calculated and managed differently, depending on the type of reserve model the processor has chosen to adopt.
Here are the 3 most common types of reserves:
- Rolling Reserve
This is when a portion of each credit card deposit, (most likely about 5-10%), is held in a reserve for a period of 6 months to a year.
These kinds of reserves are released on a continuous basis, and when the agreed upon timeframe is over, the acquirer releases the funds back to the merchant on a monthly basis. This is the most common reserves model offered to merchants.
- Up-Front Reserves
This kind of reserve is the amount of money that will have to be placed into escrow when you sign an agreement. The sum of the reserve will be determined based on your projected monthly processing volume.
To cover this cost, you can:
- Capped Reserve
This type of reserve takes a percentage of each processed card transaction until a specified amount is reached. The amount you’ll have to pay will likely be about half of your monthly processing volume.
Take note, however, that these funds will be held in the reserve until your merchant agreement is no longer valid; (they won’t be paid out on a monthly basis as is the case with rolling reserves).
If you decide to terminate your merchant account contract before the end date specified in the agreement, you might be charged a so-called Early Termination Fee (EFT). This type of fee is calculated as the processor’s compensation for the expenses they’ll have to incur as a result of you terminating the contract.
The two most common termination fees are the flat cancellation fee and liquidated damages.
- Flat Fee
This is exactly what you might expect: a pre-set amount of money you’ll have to pay if you cancel your merchant account before the agreed-upon date. Read your contract carefully, as it should make it clear which sum is the cancellation fee.
- Liquidated Damages
If your contract stipulates that you’ll be facing a liquidated damages type of cancellation fee, be aware that this could end up costing you quite a bit of money. Imagine that you signed a 3-year contract with your payment processor but decide to cancel after just 1 year — in such a case, you’ll have to pay a cancellation fee equal to 2 years’ worth of processing costs. That’s a lot. And, so, if it comes down to it, it’s better to double-check which kind of cancellation fee your chosen provider will penalize you with.
EFTs can be expensive — especially when you have a high risk merchant account. This is why, ideally, it would be most advisable to look for a payment processor who won’t make you pay an EFT, if you decide to terminate your contract.
But, in case, you’ve already signed a contract and aren’t sure whether you’ll have to incur any ETF costs, go back to the document and look for a section, which will likely be titled: Early Termination Fee, Term and Termination, or Termination. In it, you should be able to find information on whether you’ll have to deal with a potential cancellation fee.
Overall, the best solution would be to find a payment processor who is also able to provide a merchant account, and who won’t make you pay an ETF.
And, yes, we know, when you’re a high risk merchant, this may seem easier said than done, as although there are plenty of white-label payments solutions out there, finding a reliable processor who specializes in high risk business can be a challenge.
But, if you look hard enough and assess all of the elements and fees that will make up your high risk merchant account, you’ll find that certain processors do offer fairly priced and reliable merchant accounts and processing services.
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