In today's global economy, businesses in high-risk industries like forex, gambling, and cryptocurrency exchanges depend on credit card processing to serve their customers. However, they face significant challenges, particularly hidden costs that can impact profitability. These issues are magnified in international markets due to currency fluctuations, regulatory differences, and security concerns.

A report from Allied Market Research predicts that the global credit card payment market will grow at a CAGR of 8.3% through 2027. This growth offers opportunities but also brings challenges, especially for high-risk sectors. Hidden costs in high-risk international merchant account can quickly become a financial burden if not managed properly.

In this blog, we’ll discuss the hidden costs associated with high-risk credit card processing for international businesses and strategies high-risk businesses can employ to mitigate them. Read on.

The Importance of Credit Card Processing for High-Risk Businesses

Credit card processing is the backbone of modern online transactions. For high-risk industries such as cryptocurrency exchanges, online gaming, and forex trading, it is often the most convenient and preferred payment method for customers worldwide. However, due to the high risk of chargebacks, fraud, and regulatory issues, many traditional financial institutions either refuse to work with these industries or impose hefty fees to cover the risk.

High-risk merchants often have no choice but to turn to specialized processors who understand the complexities of international credit card processing in high-risk industries. While these specialized solutions help ensure seamless transactions, they come at a cost—often in the form of hidden fees that are not apparent from the outset.

The Overlooked Costs of Global Credit Card Processing

1. Higher Processing Fees:

The most immediate and visible cost for international credit card payment processing is the significantly higher processing fee compared to low-risk industries. Traditional businesses may pay processing fees between 1% to 3% of each transaction. In contrast, high-risk businesses, such as those engaged in global transactions, can see fees soar from 5% to 10%.

These elevated fees are imposed to cover the higher risk associated with chargebacks and fraud in industries with volatile transactions. For businesses that handle thousands of transactions per month, the difference in processing fees can drastically reduce profitability.

2. Currency Conversion and Foreign Exchange Fees:

International businesses often deal with multiple currencies, and high-risk merchants are no exception. Unfortunately, currency conversion and foreign exchange fees can pile up quickly, adding hidden cost to high-risk credit card processing. These fees typically range from 1% to 3% of the transaction amount and are often not disclosed upfront by payment processors.

For industries involved in forex trading and other international financial services, dealing with fluctuating exchange rates can also pose challenges. Without proper currency management tools in place, businesses may lose substantial amounts of money simply through unfavorable exchange rates.

3. Chargeback Fees and Penalties:

One of the biggest challenges for high-risk businesses, especially those operating internationally, is managing chargebacks. A chargeback happens when a customer disputes a transaction, and the funds are returned by the issuing bank. High-risk industries, such as crypto exchanges and online trading, often face higher chargeback rates due to their nature.

Chargeback fees typically range from $20 to $100 per transaction, which can add up quickly with frequent disputes. Additionally, businesses with high chargeback ratios risk being labeled as "excessive chargeback merchants," leading to even higher fees or the termination of their merchant accounts.

4. Fraud Detection and Prevention Costs

Fraud is a significant concern for businesses in high-risk industries, especially those operating internationally. Payment processors offering international credit card processing for high-risk businesses often charge extra for fraud detection and prevention tools such as tokenization, encryption, and 3D Secure.

While these services are necessary for protecting both businesses and customers, they can add substantial costs. For example, fraud detection tools can cost businesses an additional 0.5% to 1% of each transaction, and more advanced security measures can require monthly subscription fees on top of that. Failing to invest in these tools can lead to fraud losses, further inflating the hidden costs.

5. Regulatory Compliance Costs

Operating internationally means complying with various regional and local regulations, and this is especially important for high-risk industries like cryptocurrency and forex trading. Some processors offer compliance assistance as part of their services, but this often comes with additional fees. Moreover, businesses need to invest in custom compliance solutions, which could involve developing or purchasing custom banking software to ensure their operations meet international standards.

6. Delayed Settlement and Liquidity Issues

Unlike traditional low-risk businesses, which often enjoy quick settlement periods, high-risk merchants frequently face delays in accessing funds from credit card transactions. Settlement periods can stretch from 7 to 14 days or more, depending on the payment processor and the business’s risk profile. This delay in receiving funds can create liquidity issues, particularly for businesses with high daily transaction volumes.

Delayed settlements can impact cash flow, making it harder to cover operational costs, pay employees, or invest in growth initiatives. These delays are often an overlooked yet significant hidden cost of international credit card processing for high-risk merchants.

7. Account Setup and Monthly Maintenance Fees

Many high-risk payment processors charge setup fees for new merchant accounts, which can range from $500 to $1,000. Additionally, some processors impose monthly maintenance fees to cover the costs of managing high-risk accounts. These fees can range from $25 to $100 per month, depending on the provider.

These setup and maintenance fees are often hidden within contracts, making it crucial for businesses to fully understand the terms before signing up with a payment processor.

How to Mitigate the Hidden Costs?

While these hidden costs can seem overwhelming, there are several strategies high-risk businesses can employ to mitigate them:

1. Partner with a Specialized Provider: Working with a processor like PAYCLY, which specializes in high-risk industries, ensures that businesses receive competitive pricing, transparent fee structures, and robust fraud protection tools.
2. Invest in Custom Solutions: Developing custom banking software tailored to your business can help manage fraud detection, compliance, and currency conversion more effectively, reducing long-term costs.
3. Monitor Chargeback Ratios: Proactively managing chargebacks by offering exceptional customer service and employing robust fraud detection tools can minimize chargeback fees and penalties.
4. Negotiate Fees: Don’t hesitate to negotiate processing fees, especially if your business handles a high volume of transactions. Some processors are willing to offer discounts for businesses that maintain low chargeback ratios.

Conclusion

In a gist, high-risk international merchant account and credit card processing comes with a range of hidden costs that can significantly impact a business's profitability. From higher transaction fees to chargeback penalties, these costs are often unavoidable but manageable with the right strategies. By partnering with a trusted high-risk payment processor like PAYCLY and investing in the right payment processing solutions, businesses can minimize these hidden costs and ensure a more sustainable, profitable future.

Visit us at: High-risk payment processing companies

Originally published on: Medium