What is High-Risk Credit Card Processing?

High-risk credit card processing occurs when a company assists a merchant in facilitating credit card purchases that might be problematic. There are many reasons why a specific merchant would be considered to be a high risk, depending on the nature of the business and its clientele. A company that practices high-risk credit card processing knows that its merchants may have an inconsistent relationship with its customers. For this reason, the processor could incur some financial liability as a result of its relationship with the merchant in question.

Credit cards are the source of funds for a vast array of purchases, allowing consumers to acquire goods and services without immediate payment to the vendor. In a process known as credit card processing, the information from the consumer's card is sent from the merchant to the processor to the credit card company, who then validates the purchase and eventually remits payment to the merchant. There are some merchants, however, for whom this process may be complicated and fraught with issues. These companies must seek out high-risk credit card processing.

There are many issues between merchant and customer that, if they crop up frequently enough for one particular company, would necessitate high-risk credit card processing. Recurring customer distrust and lack of satisfaction in the products or services offered by the merchant is one such issue. Such problems could lead to excessive chargebacks, which occurs when a credit card payment is returned to the customer. Customers constantly demanding returns would be a huge issue for processing companies attached to unreliable merchants.

Other issues dealing with the type of business being conducted by the merchants may force them to require high-risk credit card processing. For example, a company that offers adult services like escorts or massage parlors might be too controversial for a high-profile financial institution to handle, and that institution might refuse to allow its credit card to be used at such places. Certain businesses that require a long period between payment and the rendering of services also could be considered high risk.

Once the classification is made, a processing company may decide to completely avoid any merchant considered high risk. By contrast, there are some companies that specialize in the field of high-risk credit card processing. These companies might charge a bit more for their services to merchants who fall into the high-risk category. Other high-risk processors may offer services designed to make the transaction process smoother for merchants and to cut down on problems, thereby reducing the risks involved in doing business with them.