Category: PAYMENT PROCESSING

Why Some Businesses Are Labeled High-Risk by Payment Processors

Not all businesses are treated equally by payment processors. High-risk businesses pay more in fees, need to keep chargebacks and fraud in check, and are subject to various requirements before merchant services are available to them. Even after meeting strict demands, they’re monitored closely to ease the concerns of acquiring banks and payment networks.

Luckily, high-risk merchant accounts are available, providing industry-specific merchant services to high-risk businesses that help minimize risk and ensure a working payment gateway.

But why are some businesses considered high-risk? What do they sell that labels them as such? And what exactly do high-risk merchant accounts provide their clients? Read on for a succinct breakdown of what makes a business high-risk and how you can minimize fees and maximize profit if you’re labeled as one.

The Difference Between High-risk and Low-risk Businesses

A high-risk business is one associated with a higher risk of the bank or payment processing provider losing money, basically. It’s all about financial protection. This also means that the entity providing such labels are banks and payment processors, not a governmental agency. Conversely, a low-risk business offers very little financial threat to acquirers. Most of the time, that can be broken down further according to chargeback ratio.

High-risk Products and Services

E-commerce businesses selling certain types of products or services are labeled as high-risk. Those products include adult content, online gambling, subscription services, health products like CBD and supplements, digital products, dropshipped items, advice services, gambling, timeshares, MLM (multi-level marketing), and tickets to future events. The list goes on, and as you can see it covers quite a lot of categories.

The takeaway is that being labeled a high-risk merchant shouldn’t deter you from running your store—thousands of online businesses do it successfully. Be aware of the requires set by the processor for your high-risk industry and your shop will run smoothly.

Other Factors Credit Card Processors Use That Lead to High-risk Labeling

It’s not only the products and services you sell. Many other factors play into your business being an increased risk to acquirers.

If you’ve previously experienced a terminated merchant account, your business is brand new with no card processing history, your industry suffers from high chargeback ratios, or high dollar transactions are made often, then you’ll be labeled high-risk.

Some of the criteria here can later be resolved after you have steady business with a low chargeback ratio, improve a poor credit score, and build credit card processing history. Mostly this applies to new businesses, startups, and other low-risk small businesses with bad credit that need to undergo credit repair services. If you fall into a high-risk merchant category, then you won’t be leaving it.

Some industries are a reputational risk for banks, like adult content business owners or firearms merchants. Because of this, businesses operating in these industries will always be high-risk. There’s also the potential for legal issues that lead to businesses being labeled high-risk. Health supplements, CBD, e-cigarettes, vapes, and others fall into this category. There are either FTC and FDA hurdles to jump through (or avoid), or the legality of the product changes depending on location.

Being a multi-currency business also grants you the label of high-risk. If you do business in various countries, especially high-risk countries outside of North America, Europe, and parts of Asia, then your risk level gets elevated.

Conditions High-Risk Businesses Are Subject to by Payment Processors

Rules are inherently skewed to make it easier for low-risk merchants to get up-and-running faster. For high-risk merchants, it’s not quite as easy.

Higher Fees

You can expect to pay slightly higher fees as a high-risk merchant. However, the landscape for fees has changed significantly over the years. You’ll pay the highest fees with flat-rate processors, less with three-tier processors, and the least with interchange-plus processors. You can read more about these options here to get an idea of what might work best for your business and the processing rates that follow.

High-risk businesses are also subject to higher fees related to compliance. PCI compliance is simple enough to obtain, for example. So do the research on what is required to be legally compliant for your industry and make sure you meet the criteria.

Reserves

Some acquiring banks will force you to pay into a reserve to offset chargebacks. Reserves, especially rolling reserves, can be an annoyance, but a necessary one that you shouldn’t try to fight (in the beginning). Luckily, reserves are negotiable and don’t have to eat into so much of your profits. You can learn more about how to handle reserves here.

Delayed Payment Settlement

Many processors hold funds as a method to reduce the risk of fraud, which means you might not get paid as quickly as you like. This doesn’t happen with every credit card transaction or with every processor. If you face this as a regular occurrence, you can confront your payment processor and request to lower the time limit funds are withheld, especially if sales have been consistent and you have a low chargeback ratio.

Monthly Cap Limit

Some processors might inflict a monthly sales volume cap for your business. One solution is to either get an offshore merchant account or us multiple merchant accounts. That way if you meet the sales cap with one account, you can switch to the other without problem.

Fraud Checks

Implementing fraud prevention services for your site is not too much of a hassle, even though it’s not always required for low-risk businesses. Services like 3D Secure, CVV, and AVS are fairly easy to implement and don’t disrupt the checkout process.

Chargebacks

The biggest problem issuers have with high-risk businesses is chargebacks. To summarize, chargebacks are a sort of refund request a customer makes directly to their bank, skipping over you, the merchant. Merchants issue a refund to the customer, fronting the money on your behalf until they can take it out of your account or chargeback reserve, which ends up in you paying yet another fee. Excessive chargebacks will lead to account termination.

Chargebacks are no fun for merchants or acquirers. There are ways to minimize chargebacks, though, and the right methods depend on your business type. Having a clear refund policy is one step in the right direction.

Working with a High-risk Merchant Accounts

If you know business resides in a high-risk category, you should aim to use processors specifically designed for you. High-risk merchant accounts help you avoid the hassle standard merchant accounts impose on you while providing several other benefits.

Benefits of using High-risk Merchant Account Providers

First, these accounts are designed specifically for you or your industry. There are adult entertainment merchant accounts, CBD and nutraceuticals merchant accounts, merchant accounts for dropshippers, the list goes on.

Each of these understands your business and can negotiate with acquirers and credit card processing companies regarding fees, reserves, and other hurdles high-risk businesses must jump over.

Aside from specific negotiations, a good high-risk merchant account also provides fraud protection and chargeback prevention services. These are the two top-tier factors in what makes a business high-risk, so using a merchant account that combats them is something you should really look out for.

Chargeback and fraud prevention might include using the previously mentioned CVV or AVS services. It also helps you develop refund policies that adhere to customer expectations. Friendly fraud is a big challenge here, as well. For this, letting the customer know exactly how the charge will appear on their bank statement helps prevent chargebacks from happening.

Service providers like Stripe and PayPal don’t work well with high-risk businesses. They might be popular but can easily shut down your store. That’s why it’s important to research what type of merchant account works best for your company.

3rd Party Providers Are Good to Get Started

3rd party payment service providers like PayPal may not play nice, but they are good to use when just starting out. They easily approve businesses, so you can start selling right away which helps you build valuable credit processing history.

Processing and credit history is helpful when applying for a high-risk account as those providers want to see proof of your business before making any deals. The downside is monthly sales cannot be high volume, otherwise you’ll get flagged and possibly terminated (which will look worse to future account providers). A safe zone for monthly volume is around $50k.

Don’t apply to too many credit card processors at once, though. Business will be slow in the beginning (because of the volume limit) and you’ll pay more in fees than what you want, but it’s worth it if you can do it for a few months. After using PayPal without issue, you can even add Stripe as an alternative payment gateway and double your sales volume instead of limiting potential credit card payments.

And when you do get to a point where you are appealing to high-risk payment processors, don’t be too quick to cancel your previous processing agreements. You’ll want to keep at least one as a backup, and if you cancel service you’ll be subjected to an early termination fee.

Contact Our Team of High-Risk Merchant Service Specialists

Our customer service team here at DirectPayNet is eager to get your business set up with a high-risk merchant account. We know how to properly structure merchant accounts according to your industry to meet needs specific to your business. Our specialists with get you set up with high-risk credit card processing services that also handle ACH, e-check, and debit to keep your business moving forward.

Get in touch with us today and we’ll ensure your business continues running without issue, accompanied with fraud protection, chargeback management, and more.

July 28, 2021
Comparing a Payment Aggregator With a Payment Processor (Which Is Best?)
In the world of online e-commerce, every optimization counts. And so if you’re a business owner who is selling goods online, you should be thinking carefully about the best payment methodology for your business to maximize your margins and deliver a clean customer experience every time.

One of the key decisions that need to be made for any online business is whether to go with a payment aggregator or a payment processor. Each option has different pros and cons and this article will help you to understand the differences and make the right decision for your company’s online payments.

Let’s dig in.

What is a Payment Aggregator vs a Payment Processor

A payment aggregator refers to a 3rd party service provider that aggregates a range of different payment methods and delivers it in one interface for a client to plug into their online store. These could include accepting various payment options such as credit card payments (Visa / Mastercard), debit cards, and any other payment method that you’d like to offer. They do all the hard work behind the scenes to pull the various pieces into one solution and so you can give your clients options without needing to figure out all the back-end infrastructure. Essentially, they have one master merchant account and you will receive a sub ID under that master account. They become your de facto payment service provider (PSP) by enabling sub-merchants.

A payment processor, on the other hand, is when you control the merchant account yourself and you set up a gateway on your website to accept payments into your bank account. This gateway links your checkout page to the merchant account in question – allowing you to fully control the entire payment process. You have more control, but you are also more responsible for fraud, chargebacks, and the like. You could think of it as a point-of-sale (POS) device for online transactions.

Some of the key differences between the two manifest in the following distinctions:
- Payment aggregators tend to be more expensive than processors because of the extra service charges you’re paying to the third-party intermediary who is handling the back-end merchant accounts as a merchant service. This pricing will vary between different payment processing providers and so it’s worth doing your research to compare the various providers (Stripe, PayPal, etc.) with one another.
- It’s much easier to be approved for an aggregator because you are leveraging their merchant account rather than getting your own. A typical payment processor, however, will have a higher bar to clear in this regard, and often they will want to see some sort of processing history before you can be approved. It might look like the aggregator is better in this instance, because in most cases, they will instantly approve your account but you should know that they won’t hesitate to close it down at the first sign of any issues, leaving high-risk merchants in the lurch after they are approved and then shut down after a few weeks. A payment processor is going to be more loyal.
- The direct payment processor route is potentially better for branding your business because you can control the aesthetic features instead of routing your clients through another company’s interface. That being said, getting a direct payment processor requires an application and a longer process overall. At the end of the day, you need to determine what is best for you because there are advantages to using direct processors for certain business types.
- It’s quicker to get started with a payment aggregator than it is with a payment processor because there is much less paperwork and often you can be approved instantly. Integrating a direct processor into your app or website takes time and various compliance requirements that can’t be done instantly.
Those are just some of the key differences between the two and as you can see, they both have their strengths and weaknesses. The key is to identify what matters most to you as a business and how you can leverage that for your own ideal payment system.

Now, let’s look at how the size of your business might affect your choice.

Startups vs Businesses At Scale

One of the most important factors that is going to influence your choice here is where your business lies in its life cycle. The implications for a start-up are going to be very different than for a larger company because you have different constraints and considerations to take into account.

For a startup company or a small business that is just trying to get off the ground, it is going to be difficult to get your own merchant account and all the surrounding back-end infrastructure because you don’t have a processing history to point towards. This is especially true if you run a high-risk business.

As a result, we typically recommend that start-ups use a payment aggregator in the beginning because it allows them to build a processing history on the back of another merchant account. In addition, it’s much faster to get up and running because there is less paperwork involved. With an aggregator, you can test your business model faster and start iterating – rather than going through the full app process to integrate a direct payment processor.

Once you start to scale the business and your revenue is growing ($50k per month and more), it makes more sense to use a dedicated payment processor because of your increased transaction volume. At this point, you should have product-market fit and a processing history in order to be approved for credit card processing that flows into your own merchant account. Going direct like this makes a lot of sense because it will improve your cash flow and remove the intermediary that stands in the middle of the transaction. Instead, you will be connected directly to the issuing bank. You don’t have to wait days for bank transfers anymore. You will have full control over the entire transaction processing experience, and you can optimize things however you see fit.

There are exceptions to this rule of course, but for the most part – that is the best way to think about this payment solution dilemma.

Now let’s look at the long-term service relationships for each of these online payment gateway options.

The Long-Term Implications of Your Payment Facilitator

When you decide to work with a payment aggregator or a payment processor, you are essentially choosing a business partner. This is not just a third party that you outsource a non-core part of your business to. This is the bread and butter of your company. This is not an area where you should ever accept less than the very best of service. The way that you process payments really matters, regardless of what you sell.

As such, you should be looking for a long-term partner to walk this journey with you and help you deal with any roadblocks and obstacles that come along the way.

Payment aggregators, in general, are very good at getting you to sign up – because they will go above and beyond to acquire you as a customer during the onboarding process. But when it comes to loyalty over the long haul, things aren’t quite the same. If there is ever an incident with your account or perceived risk to their eCommerce merchant account because of your activity, they are more than happy to shut you down completely to protect their account. This is a big problem with aggregators like PayPal and Stripe who will shut down your account without explanation because of CB issues. They don’t really have any incentive to grow a relationship with you – which means that you’re not going to get a lot of value-adding components above what you pay for.

A payment processor is another story altogether. These take longer to set up because they require more administration and a more in-depth application process in terms of getting your merchant account, but when you’re set up – they have an incentive to give you a great experience. Over time they will get to know your business and treat you as a long-term business partner because their rewards and tied up with yours. So, they are much less likely to pull the plug if there is a concern of any kind – they would rather work with you to rectify the situation, especially when it comes to PCI compliance issues. This bears fruit as a much more beneficial working relationship that can actually become a significant asset for your business over the long term.

Therefore, it’s worth taking some time to think through how important the payment partner is in relation to your business and if it is a crucial piece of what you do – then you might want to go with the option that is going to grow and scale with you because that is what will set you up for long-term success.

Conclusion

In summary, the differences between payment aggregators and payment processors are significant and the right decision for you depends on a number of factors. Take your time to understand both sides of the coin and make the right decision for the long-term stability of your business.

The way that you process payments is not something you can afford to skimp on because it is the backbone of your cash flow cycle. If you make the right decision at an early stage, it sets you up well for a long and prosperous partnership that is going to stick with you through thick and thin. If you make the wrong decision, then your business will not be robust to the obstacles that the market throws at you when you least expect it.
July 21, 2021
How to Secure Payment Processing for SaaS Applications

SaaS applications are one of the most convenient for users and the companies who offer them are fast-growing, acting as strong contenders for redefining what a service or business can be. That convenience comes with a price, however.

Because SaaS applications are web-based software and often require subs cription pricing models, they are flagged as high-risk to banks and payment processors. This makes it difficult for these hosted software business types to offer a shopping cart or manage payments for subscription billing systems.

That’s a serious threat to the business as a whole; if an entirely web- or cloud-based service cannot be paid for and, thus, accessed, how can the company remain profitable?

The Reasons Why SaaS Business Models Are Labeled High Risk

Understanding the reasons why a SaaS company is labeled as high risk is helpful to combating the challenges that follow. You’ll be better prepared when applying for merchant accounts and will know which payment methods providers to avoid so you can secure a shopping cart faster.

It’s akin to applying for a credit card: each application has a chance to be denied, potentially leaving a negative mark on your credit report. If you are denied too many times when applying for a payment gateway provider, you may be put on a blacklist.

All-Digital Services

When a companies sell cloud-based or all-digital services, they are always classified as high risk. The reason behind this varies between money laundering, illegal file sharing, adult content, and more. Most importantly, it’s difficult for processors to verify that what a user is experiencing is what’s being sold.

You won’t be able to remove the high-risk merchant label, but you can alleviate the doubt providers may have by clarifying what your product does, what users can expect, and basically verifying that what we’re providing is exactly what they’re getting.

Online-only businesses also fall under the high-risk category because of card-not-present transactions. Any online store is subject to this, as the customer is not directly handing you their credit card. Instead, they enter their own credit card information manually, which runs the risk of fraudulent transactions.

There are security APIs and plug-ins you can use with your gateway to make credit card payments more secure that don’t disrupt the checkout flow and mitigate fraud.

Poor Reputation

SaaS applications ride on the backs of internet reviews. If too many users write complaints or low-star reviews, it doesn’t paint your business in the best light. How can you guarantee that these were one-off issues or people who just don’t want to pay for the service? When applying for a SaaS merchant account or to a payment provider, you can be sure that reviews will be researched.

Good customer support service is a great way to combat a negative review. Commenting on the review and assisting that user with whatever their issue may be lifts some of the tension a payment process provider might have when seeing a slew of negative feedback about your service. Also, providing access to your SaaS application could help them compare actual functionality to what’s described on your website and in your subscription packages.

Subscription Models

Subscription billing models are great for business and appealing to customers, but unfortunately fall under the high-risk label. One reason is because service must be available for the entire timeframe stated in the user’s subscription package. If they purchase a month of service, you need to provide at least 30 days of full, uninterrupted service.

Another big risk is with recurring payments, which assumes the user has funds to pull from their account. If funds don’t exist, that’s a big problem for you and the payment provider.

If you offer subscription packages, it’s important that you detail exactly what users get in each package. There should be no question as to functionality, timeframe for which the service is accessible, and cost. Otherwise, credit card processing for your packages may come to a halt when you lease expect it.

Chargeback Ratio

This topic applies to all the previously mentioned reasons and is one of the biggest concerns for acquiring banks and processors. Chargebacks are a detriment to the SaaS industry. These occur when users who want a refund skip your customer service team and go straight to their bank to dispute the transaction. They might do this to get out of paying for the service, because they don’t recognize the service, or because they were unhappy with the service.

Chargeback ratios are one of the most important things to monitor when running a high-risk business. The lower the ratio the better your standing is with the provider and the more likely your shopping cart will continue to work.

Providing a clear, easily accessible refund policy is a great start to mitigating chargebacks. The policy should be emailed to the user and accessible from any page of your site or software.

Next, you should clarify what a charge looks like on the user’s bank statement. Sometimes, the line item doesn’t match your company name. When sending the receipt for payment, a screenshot or graphic of what that charge actually looks like on a bank statement is incredibly helpful. Users will be able to recognize your company and avoid committing friendly fraud.

To help combat actual fraud, obtaining PCI compliance and implementing checkout security services like 3D Secure is well worth the initial investment. It will help you verify customers and eliminate fraudsters, keeping chargebacks at a minimum.

There’s no way to completely eliminate chargebacks, but you can monitor them closely and react appropriately by implementing new strategies that help address the concern. The right SaaS merchant account provider will offer chargeback and fraud monitoring services to help you stay on top of your chargeback ratio and remain in good standing with acquiring banks.

Stripe as a Starting Point for Payment Processing

Stripe is a great starting point for SaaS companies for several reasons. It’s one of the more recent additions to SaaS payment processing, but it’s quickly scaled the ladder in popularity.

Quick-start Payment Solutions for SaaS

You can get up-and-running fast with near-instant approval when applying for a SaaS merchant account through Stripe. The payments company is known for its ease-of-use and simplicity when it comes to applying and implementing. That follows through for SaaS accounts, as well, giving players in this booming industry a running start.

Starting fast has its drawbacks, though. SaaS is still considered high risk, which means it’s subject to Stripe’s strict policies that often get businesses suspended or shut down. Stripe reacts negatively even when your business grows at an exponential rate, so there’s a lot to keep under control if using Stripe.

Once you start selling more than $10,000, suspicion arises. The safest place to reside regarding sales volume is under $50,000. But keep in mind that Stripe is a good start to giving your online business a shopping cart, not a good long-term solution. While using Stripe, you should also be applying to alternative providers designed around high-risk merchants, like DirectPayNet.

Familiar Service

Stripe is familiar; it’s a household name like PayPal for business owners who maybe don’t know where to start when looking for a payment processor. Or even for established brands, Stripe is an easy solution that providers a user-friendly payment gateway that accepts Visa, MasterCard, credit cards, debit cards, and even ACH payments for direct debits.

This familiarity is more relevant for business owners rather than users, though. PayPal is also a well-known service for online payments, but its brand and functionality work differently than Stripes, namely by allowing users to create their own PayPal account. Customers don’t need to create their own Stripe account to make a payment on your site, so the brand name doesn’t mean much to them.

The best way to move forward with obtaining a payment processor for your SaaS business is to start with Stripe while researching, comparing, and contacting various high-risk SaaS merchant account providers. You can always keep Stripe as a backup option as there’s no rule against having multiple payment gateways for your business.

Contact a High-risk SaaS Payment Processor

Again, don’t rely on familiarity and convenience alone to secure a SaaS payment processor. The most important things to keep in mind are reliability, offering multiple payment options, and support for your business type.

Reliable Payment Processing Solutions

No business wants their shopping cart to be non-functional or their payment gateway to stop accepting payments. That’s a big risk for SaaS companies who use third-party processors like Stripe. Instead, focus on acquiring a processor that you can rely on for increasing or irregular monthly sales volumes and chargeback protection. You don’t want to run your business paranoid about being shut down.

Accepting Preferred Payment Types

Depending on what markets you operate in, there’s always a dominant method of payment that’s preferred by customers. Ensure your gateway offers these methods of payment by using a merchant account that doesn’t that doesn’t limit the user’s ability to make payments. ACH payment processing is incredibly popular for subscription services like those offered by SaaS companies.

Specific Support for SaaS Merchants

Your payment processor should understand your business type including the risks associated with it. This helps your merchant account support team mitigate payment and account issues and better negotiate terms and fees with acquiring banks. Don’t be afraid to shop around and contact multiple SaaS payment processors to compare their knowledge and support for your business so you not only get a shopping cart that works, but also a support team that understands you.

Contact DirectPayNet for SaaS Payment Processing

Our customer support team understands the SaaS business models and has helped many subscription-based businesses scale their company and provide reliable payment processing options. We are eager to help businesses of all sizes, including startups and small businesses set up their e-commerce payment gateway.

Contact us today to discover your options as a high-risk SaaS merchant.

July 14, 2021
FAQ Friday – Understanding Fees Part 2: Payment Processing Fees

As a high-risk merchant, your monthly statements will undoubtedly contain more fees than low-risk merchants. You can negotiate those fees down to zero (in some cases), while others remain fixed for the lifetime of your account. Payment processing fees fall into both categories.

Just like in the first part of this series where we informed you of high-risk merchant account fees (especially interchange fees and interchange plus pricing), here we will dive further into payment processing fees. It’s important to understand what you’re being charged with every card transaction, refund, chargeback, or even monthly. Some of these fees should absolutely be eradicated, others can be lowered significantly, and some will remain the same.

It’s important to understand all the fees from your payment processor so you know what you’re paying at the end of the month. Combine these processing fees with what you learned about discount rates, interchange rates, and tiered pricing (qualified, mid-qualified, and non-qualified) to get the full concept of processing costs.

This can also help you shop around for a better merchant account provider if you feel that what you’re being charged currently is too high or there’s no room for negotiation. Stay informed, understand your statements, and you’re sure to see an improvement on your bottom line.

The Two Types of Transaction Fees

With every transaction, you have two associated fees: authorization fee and credit transaction/sales fee. There are no set rates for each; it’s entirely dependent on the online payment processor you use. There is also a one-time setup fee your processor charges upon activation of your account.

Authorization

An authorization fee is simple. It’s a fee associated with approving the card for the transaction amount. Usually, the amount is small, maybe $0.05. It’s the fee that payment processing companies use to accept a credit card payment via MasterCard, Visa, Discover, or American Express (whatever the credit/debit card type is). This fee occurs per attempt, meaning if a transaction fails, then you still pay the fee for that failed transaction as well as any future transactions until it’s approved.

But at the end of the day, it’s just one small fee out of many that appear on your statement. With merchant accounts, there will always be an authorization fee. Speak with your processor about the possibility negotiating the price down, but don’t expect the fee to be eliminated entirely.

Credit Transaction or Sales Fee

When the transaction is authorized, there’s yet another fee you’re charged called a sales fee or a credit transaction fee if the transaction is approved. The language changes depending on your processor and the statement you’re reading, so keep in mind that “sales fee” equals “credit transaction fee”.

The flat fee can range between extremely low, around $0.05, or on the higher end, like $0.30. For context, Stripe and PayPal use flat-rate pricing of $0.30 for transaction fees (which includes the transaction authorization fee). Some credit card processors charge a flat fee for both but others have 2 separate fees. When a separate fee is charged for authorization vs sales fee, you save funds as declined transactions carry a lower cost. With Stripe or PayPal, you pay the same fee regardless of whether or not the card transaction is approved.

This is where merchant accounts shine, because you can negotiate these transaction fees and many processors charge differing amounts per transaction type. As mentioned, the rate changes if a transaction is declined or accepted. This can save you some serious cash in the end if you get repeat customers who make mistakes when entering their credit card info.

The Deal with Chargeback Fees

Chargebacks are a big part of what makes up higher risk e-commerce businesses. They are like super-powered refunds, but in a bad way. That’s because in the end, you lose the money from the sale in addition to a fee that’s $30 or more.

Chargebacks happen to regular merchants, too, so you aren’t alone in receiving a fee for one. But as a high-risk seller, your chargeback fee will certainly be a higher rate, at least initially. These charges hold zero value to you—you’ve already lost the money from the sale. Luckily, you can talk with your payment processor and attempt to lower that fee. But don’t do it right away; you need proof of good standing with your account before fees of this nature can be negotiated.

If you’re well-established (at least 6 months of working with your processor) and have consistently successful sales with a low chargeback ratio, then now’s the time to negotiate. Payment processors are much more willing to lower the cost of a fee if they see that there’s no harm to their own business. In the end, each merchant account provider is connected with an acquiring bank whose number one goal is financial security/profit. Stay in the black and your credit card processor will work with you and can start quashing those unnecessary additional fees.

Average Credit Card Processing Fees to Understand and Negotiate

Authorization, transaction, discount rate (which includes interchange fees) as well as chargeback fees are the major fees you should be aware of because they either have the largest impact or happen with each swipe at checkout (whether online ecommerce, keyed-in or at a POS). But there are many other types of fees, even some hidden fees, you can negotiate down that maybe aren’t as impactful but can still make a dent in your bottom line.

Retrieval Request

When a customer calls their bank to request information about a past or present transaction, you are charged a retrieval fee. These fees can be around $20, so not exactly cheap just to get info about a past transaction.

However, retrieval request fees don’t occur with every transaction type. If you speak with your credit card processing company, then they can inform you of what types do incur this fee (e.g., transactions over a specified amount, credit/debit card transactions that date back more than a year, etc.).

A retrieval request often acts as the preliminary action before a chargeback, building up to the refund request. A customer calls their bank, asks about a transaction, then disputes it. There’s no way to prevent a retrieval request, but you can speak with your processor about being informed when they occur. This is so you can possibly prevent a chargeback from happening by providing transaction and shipping details regarding the purchase.

Refund Fee

Not as intense as a chargeback fee but equally frustrating are refund fees. When a customer makes a standard refund, many credit card processors charge you for it. Some providers charge the same rate as a credit card transaction fee, others charge something different. You should absolutely negotiate out of this fee as there is no extra cost for processing a refund.

PCI-compliance

It’s highly recommended for you to be PCI-compliant, if you’re not, you may be subject to penalties. For non-compliance, fees are around $50 per month, which is pretty steep. It’s easier to just be PCI-compliant: your rate will lower to around $10 per month (or maybe a yearly fee), and it only takes around 30 minutes to complete. A simple quiz or scan of your website will help prevent this additional fee.

Statement Fee

This is a benign monthly fee that can easily add up to a few hundred dollars. This is why it’s so important to review your statements and question each fee that appears. You could be paying hundreds per month unnecessarily. So, if you see this fee then call your provider and negotiate it down.

Additional Fees

Other fees that you can’t do too much about include cancellation fees, high-risk fees, customer service fees, assessment fees, association fees and cross-border fees. These are fairly self-explanatory except association fees, which are charges from the credit card network (Visa, MasterCard, AMEX, or another card issuer) that appear simply because you are a merchant who accepts that type of card. Fees can also range based on your type of business or your merchant category code (MCC).

How to Handle Reserves Properly

Reserves, sometimes called chargeback reserves, are forced upon direct response merchants (i.e., supplement sellers, digital course merchants, etc.). They are a way for acquirers to feel secure about allowing you, a high-risk merchant, to use their payment gateway.

Don’t Fight Reserves

At least not right away. Because reserves are a security measure, it’s best if you accept them without much pushback. This will get your foot in the door, so in the future you can negotiate your way around them.

Ask for Capped Reserves

Most reserves are a percentage of your sales processing volume, usually around 5% or 10%. But that adds up quick. 10% of all sales every month sounds unnecessary. The bank only needs some cash reserved in case a chargeback occurs or they want a pool of money to use for fees.

Ask for a capped reserve instead of a percentage. They should be happy with around 50% of your typical monthly transaction volume. For example, if you sell $100k in a month, the ask for a cap at $50k.

Request a Repayment Plan

After 6 months, look through your statements and calculate how much money is in the reserve. If it’s twice as much (or even more) than the cap you’ve negotiated, it’s time to ask for that money to be repaid. But when you do this, don’t ask for it all at once. Instead, request a repayment plan from the bank to you.

The bank will still need a reserve, so don’t expect all the cash to come back if your account is still open.

Wrap-up of Processing Fees for High-Risk Small Businesses

Just like with high-risk merchant account fees, you should aim to understand what fees your payment processor is charging you. Many small businesses end up paying way more than what they should, but never do anything about it. So, take the time to go through your statements, speak with your provider or agent, and understand what you’re paying.

The merchant services provided by DirectPayNet keep these fees in mind. When you speak with one of our customer service agents, we’ll help you get to the bottom of your request so you can minimize fees and maximize scalability.

Speak with us today to find out more about our high-risk merchant accounts.

June 25, 2021
How US-based Websites Can Accept Credit Card Payments in Europe

Gaining traction in the European market is essential for the growth of any global brand. Having a credit card payments processor that accepts international payments is a fundamental asset for your online business. Between local currencies, foreign transaction fees, and exchange rates, there are several aspects of which your e-commerce store needs to maintain awareness all times. And this is only after you’ve found a payment service that accepts global payments without breaching service agreements.

Here, we will outline what you need to operate as a US retailer in Europe successfully, helping you scale your large, medium, or small business across the globe to unprecedented levels of success.

Accepting Credit Card Payments in Local European Currencies

Customers in Europe, just like those in the US, are seeking convenience when making online purchases. Credit cards are a convenient option for consumers across the world, giving them the freedom to make purchases anywhere Visa, MasterCard, Discover, and American Express (or whatever local card they may hold) is accepted. US-based online storefronts accept these payment methods but often only display USD, no EUR.

This discrepancy may deter some but not all. The bigger issue is the fees that are charged to the customer when making their purchase. Their issuing bank will likely charge an international transaction fee and use a relatively high currency conversion rate. This could lead to cancellations, chargebacks, and a significant decrease in international sales.

Often enough, consumers want to avoid these two extra charges, but there are very few ways to do so. Many times, they will leave your store to find the same or similar product sold in their own currency elsewhere. What can you do about it?

Use a Processor That Works in Europe, Locally or Internationally

Using an online payment processing service that accepts local currencies, or euros at the very least, will keep consumers on your site and your profits rising. Luckily, the euro is fairly universal for the European continent, so it’s a great first step to getting your foot in the door. You’ll need a credit card processor that accepts local currencies in Europe with exchange rate and transaction rates that don’t hurt your bottom line.

PayPal is often used for international purchases and sales as it makes online transactions easy on both ends. However, there are noticeable downsides to using PayPal in multiple markets. For consumers, the exchange rate is incredibly high. When consumers see this, they may be deterred from making purchases from you now and in the future. For businesses, especially high-risk businesses, PayPal charges insanely high fees and can refuse service altogether. There are better ways to accept payments that keep costs down without downgrading the experience and protecting yourself against chargebacks.

For businesses whose sales volume exceeds $100K per month in an international region, it might be worth considering opening a local EU operation. Credit card issuers and local banks in European countries convert transactions better than international bank accounts, so operating locally would reduce fees and increase conversions.

On the other hand, if volume is lower, then you can speak with your current provider about installing a simple plugin that allows for cross-border payments or dynamic currency conversion similar to the service offered by Paypal or Stripe. This would also avoid exchange rates from various currencies to your local currency USD.

Companies like DirectPayNet use international connections and payment processors to allow your business to accept international credit card payments with low fees and without opening additional e-commerce storefronts.

Utilize Methods to Ensure Brand Presence in Europe

Using a checkout system that accepts international or local currency credit card transactions is not the only hurdle when operating a US-based business outside the continent. Other methods that ensure your presence and profitability in other markets involve changes to your website as well as acceptance of alternative payment methods. For example, in Germany, SEPA payments are quite popular whereas Spain and the United Kingdom have several debit card options that are widely used.

Find Your Audience

The customers you have in the US or North America may not behave the same way as those in Europe. Do some audience research and find the demographics—especially location-wise—that your brand appeals to most.

The first benefit is expected: you’ll make more sales because you can target potential customers better increasing your market share. Understanding your audience is one of the most indispensable advantages of owning a business that deeply affects each department within your company. From marketing and design to pricing and payment methods.

The second benefit is using that data to operate in a specific market within the European Continent. When you know that you have a large following or high potential in Germany and The Netherlands but very little in Iceland and Spain, then you can use that information towards location-specific credit card acceptance. Whether that means partnering with a payment service from that region using one that accepts the region’s local currency, audience data will boost scalability.

Translate your Website

Though English is a universal language, it may not be the best language to use to penetrate a local European market. That’s especially true if you are planning to operate in a specific European country or region. In that case, you will want to have your website translated.

A translated website increases conversions. You don’t appear as a foreign entity to the locals, instead you appear as a company with global reach and regional understanding. Your website resonates better when it’s written in the language spoken by the people using it.

It also helps you avoid any confusion with terms of service, product descriptions, refund policies, and more. Consumers will understand your brand better if they can experience it in their native tongue.

Allow Other Payment Methods

When first tapping into markets in Europe, credit cards should be your priority. But don’t assume that it’s a widely used format or that cardholders are within your target audience. Research shows that credit cards are not always the most widely used method for making payments across the continent. Many European customers still prefer to use cash when possible. We understand that type of payment is not possible when running an online-only store, but the information is still insightful as to what types of payments you should accept or prioritize. You may consider COD (Cash-on-Demand) when possible

If your store will operate in several countries across Europe, then focus on credit cards: using local banks if possible, asking your merchant account representative to investigate partner banks with lower fees, and accepting local currencies on your payment gateway. If you are planning to operate in just one or two European countries, then research which payment types are used most often. You may want to allow credit cards as a solid backup payment solution but focus more on bank transfers (via SEPA), debit cards, direct debits, wire transfers, or e-wallets.

Merchant Accounts Allow Your Business to Scale in Europe while Staying Secure and Accepting Local Currencies with a Focus on Your Bottom Line

Your bottom line is what matters. Using a payment method that has minimal fees while maximizing positive impact on your bottom line is the best way to scale in a new market. DirectPayNet works directly with several banks to allow international sales. We can help you set up locally within the EU as well as ensure functionality with local currencies on your US-based site. This minimizes processing and currency exchange fees for both you and your customer. We achieve this through our highly secure payment gateway that’s designed for ease-of-use on the consumer-side and alteration on the developer side, so you can add and remove currencies as you need.

Contact our expert team of customer service representatives today and we’ll get you set up with a payment gateway that accepts all major credit cards, currencies, and payment types. Scale your business and prove your global authority with DirectPayNet.

May 11, 2021