High Risk Credit Card Processing FAQ

 

-Q: What makes a merchant “High Risk”?

-Q: What makes a merchant “Harder to Place”?

-Q: What is an example of a true “High Risk” merchant?

-Q: What is an example of a true “Harder to Place” merchant?

-Q: Why are banks so worried about chargeback exposure if the merchant is a legitimate business offering a legitimate product and/or service?

-Q: What are the rates?

-Q: Will there be a reserve?

-Q: When will the merchants receive their funds?

-Q: Why is Fort Point Payments unable to provide a quote at this time?

-Q: How long does it typically take to underwrite an account?

-Q: What kinds of documentation should I be gathering?

-Q: Can I go direct with you?

-Q: I know this merchant personally; can we give them special consideration?


-Q: What makes a merchant “High Risk”?

-A: “High Risk” refers to chargeback exposure, where the bank is accountable for all chargebacks if a merchant’s business were to cease operation for any reason. Most businesses dubbed “High Risk” are actually miscategorized, as they should be more appropriately labeled as “Harder to Place”.

-Q: What makes a merchant “Harder to Place”?

-A: “Harder to Place” merchants are businesses that a typical acquiring bank will not approve or even consider based on various details about their business that are not in line with their underwriting guidelines. These tend to have nothing to do with chargeback exposure, and most merchants don’t know they’re “Harder to Place” until they get declined by their first processor.

-Q: What is an example of a true “High Risk” merchant?

-A: One such example are Travel Agents as there are several factors that make this business type “High Risk”. The vast majority of travel agents are good people who run legitimate sales through their business, but the problem lies with what is outside of their control. They can do an excellent job booking a vacation well below market price, but they can’t compete against last minute deals from hotels and airlines that significantly drop their rates the week before the vacation starts due to a surplus of available rooms/seats. In this instance it’s their customer wherein lies the problem, as they tend to book the new vacation themselves and dispute the original charge by the travel agent through the card company because they’re likely to win the dispute. They also don’t have any control over how their vendors operate, and if their customer has a bad experience on their vacation for any number of unforeseeable reasons they are likely to get buyers remorse and dispute the charges. 

-Q: What is an example of a true “Harder to Place” merchant?

-A: Electronic cigarettes are a good example as most banks reject this business type on principle alone, citing that it’s too easy for a minor to purchase the products online due to age verification software being fairly easy to bypass. These processors would likely auto-approve retail e-Cig merchants without thinking twice. It’s the potential of taking part in facilitating the sale of nicotine products to minors that the processor is avoiding, and has nothing to do with the potential losses it could incur from chargebacks.

-Q: Why are banks so worried about chargeback exposure if the merchant is a legitimate business offering a legitimate product and/or service?

-A: Banks have been doing this a lot longer than we have, and they’ve seen enough to know that even good businesses can go bad. Think about how many low risk merchants your portfolio lost in the years following the financial crisis of 2008. Acquiring banks tend to think, “How much do we stand to lose if this company closes its doors tomorrow?” Banks are typically on the hook for chargebacks for six months after the delivery of a product, not the date the payment was taken by the merchant. If in January a cardholder were to purchase a ticket for an event that took place later that year on New Years Eve, the bank that processed that transaction would have 18 months of exposure on that sale. That means the bank has to worry about that sale being disputed by the cardholder for a year and a half. A lot can happen in that much time. 

-Q: What are the rates?

-A: In most cases, we try to match pricing already quoted by our sales/referral partners, but for true “High Risk” merchants unfortunately pricing is a factor that underwriters do take into account, and pricing tends to be higher. Some of our banks will give us pricing guidelines on certain industry types whereas they will not consider looking at deals that are priced below certain rates, and other banks will kick us back the application requesting the deal be written with certain pricing minimums. We always prefer to write “Interchange Plus” with competitive rates, but sometimes the decision is simply out of our hands.

-Q: Will there be a reserve?

-A: We hate reserves just as much as merchants, and we cringe whenever we find out it’s a condition for getting an approval. That being said, most merchants that require a reserve are almost guaranteed not to have any other options, so it’s a simple choice of processing with a reserve until they can show the processor that they can run clean business with low chargebacks or not process cards at all.

-Q: When will the merchants receive their funds?

-A: Most of our merchants are set up with 24-48 hour funding, with the exception of Sundays and sometimes Saturdays depending on the bank. Next day funding can be tough, but a case can be made for merchants with processing history. Some merchants can only be set up with our offshore banks and those funding schedules are typically delayed by about a week on average. It is not uncommon for merchants to be put on 100% reserve until the risk department can call to verify their first sale(s) with the cardholders, but merchants are well informed in those instances.

-Q: Why is Fort Point Payments unable to provide a quote at this time?

-A: We don’t quote accounts unless we’re sure we can provide merchants with the best possible terms & conditions. “High Risk” and  “Harder to Place” merchant accounts are underwritten much differently than what you are typically used to. We “scrub” our accounts with the banks in our network to get an idea of which of our processing partners are likely to approve the deals, then once we’ve discussed the business details with a handful of underwriters, we then are able to quote rates and present the merchants with applications listing a complete schedule of fees. We can’t make any money if the merchant never signs our applications and our best shot at getting the merchants to sign with us is to present them with the best deals we can source for them. Often that process takes time.

-Q: How long does it typically take to underwrite an account?

-A: Time frame varies a great deal ranging from auto-approvals to ten business days. The typical account takes 2-3 business days to get a decision from underwriting. This process can be further delayed by merchants not relaying required documents in a timely manner. Our sales/referral partners can be very helpful during this process.

-Q: What kinds of documentation should I be gathering?

-A: It will only make our jobs that much easier if you are able to send us all the documentation you have collected for every merchant you send our way, especially if you have already tried to get them approved with your own underwriting department. It is ALWAYS a good idea to let the merchant know that you will be passing us their application and supporting documents before doing so. ALL of our application submissions need to include, photo ID, voided check or bank letter, last three months of bank statements, last three months of processing statements, W9 or SS4.

-Q: Can I go direct with you?

-A: Fort Point Payments operates on 100% referrals both for merchant accounts and sales/referral partnerships. With the exception of our executives seeking out new partners through our internal networks, we do not conduct marketing of any kind. Any merchants or agents who “found us online” will be met with suspicion and almost always turned away.

-Q: I know this merchant personally; can we give them special consideration?

-A: We are always happy to accommodate our partners by offering “buddy deals”, but in some cases we are bound by the terms and conditions of our banks. We have a lot of pricing autonomy on “Harder to Place” deals but can run into some roadblocks when it comes to true “High Risk” merchants. The only guarantee we can make is to offer them the best pricing our banks will allow.