Struggling to find a payment processor that approves high-risk businesses? Discover how KoiPay helps merchants achieve 96%+ conversion without the stress.
If your business was rejected by banks when trying to open a merchant account, you understand the frustration of being labeled “high-risk” by the industry. You spend weeks trying to get approved only to hear back from the bank about their decision to deny your application or accept you with restrictions that freeze your money at the first sign of a chargeback.
It’s unfortunate but normal for businesses in the CBD, nutraceuticals, adult, gambling, forex, or subscription, travel, and telehealth niches. They are considered high-risk by default, and a traditional financial institution is not the best fit for working with them.
The good news is that there are payment platforms that specialize in high-risk industries and understand the difficulties of processing payments for them. We’ll discuss how high-risk businesses are different and why their conversion rate is the indicator of choice when comparing payment processors.
Overview of High-Risk Business in the Payment Processing Industry
Before discussing how to choose a processor, it’s essential to describe what it means for a business to be labeled high-risk.
A bank or a third-party payment processor considers a company high-risk for several reasons, including high chargeback rates, the nature and volatility of the industry, average transaction size, presence of recurring payments and subscriptions, regulatory compliance, and credit and financial history. None of these factors are inherently bad, but most traditional processors avoid working with businesses that have a combination of these characteristics.
For example, a CBD company may have an excellent credit history but operates in a niche that remains heavily regulated in many jurisdictions. A gambling website may have moderate chargeback rates but engages in transactions with large sums of money, making these businesses high-risk in the eyes of banks.
A payment processor must take these factors into account when choosing how to onboard the merchant and what fees to apply. In many cases, high-risk businesses require additional underwriting and experience from the processor’s side.
Understanding the Approval and Conversion Rates
When searching for a suitable payment processor, many high-risk businesses focus too much attention on the initial approval and too little on the all-important conversion rate. A merchant’s conversion rate is the percentage of paying customers who were able to pay with a chosen method and succeed in the transaction. The reasons for a failed payment vary, but there are usually several broad causes.
First, the customer may enter incorrect information, such as a wrong PIN, card verification value (CVV), or card number, or have insufficient funds on the card, a common cause of transaction failure. Decline can also be due to technical problems on the merchant’s side, such as a failed payment gateway, or insufficient information about the client’s card or location.
With traditional processors, it’s also necessary to consider the increased likelihood of being flagged by a card network. Card networks and issuing banks have tighter security requirements for high-risk industries, which means that legitimate customers may be unable to make payments.
Conversion rates are lower for high-risk businesses because of the increased likelihood of payment failure, and this is why many such businesses close or give up on processing payments. Any successful payment processor for high-risk niches must have a comprehensive knowledge of the problem areas and the tools to address them.
What Sets KoiPay Apart From Other Processors?
A high-risk payment processor must operate differently than a traditional one, handling unique challenges that arise during processing. These differences affect everything from a merchant’s authorization rate to their ability to recover from chargebacks.
KoiPay understands the difficulties faced by high-risk businesses and offers a comprehensive platform that addresses all the pain points. Here are several ways in which KoiPay handles high-risk processing differently:
Multi-Acquirer Platform
The most common reason for failed transactions is that the acquiring bank refused to process the payment. For many high-risk industries, a single acquiring bank is not sufficient, as each one has its own risk assessment. KoiPay provides access to multiple acquirers, eliminating the risk of being blocked by one and having no alternatives.
Industry-Specific Underwriting
Processing high-risk payments is challenging, and a one-size-fits-all approach rarely works. Nutraceuticals, forex trading, CBD, and other industries have unique characteristics that must be taken into account when determining a merchant’s risk level and processing fees.
Fraud Filtering
Many processors have overly strict fraud filters, adding extra levels of scrutiny that can turn off customers. KoiPay’s fraud detection engine uses adaptive machine learning to identify suspicious transactions while minimizing false positives during the payment process.
Local Payment Methods
Not all customers are the same, and not all of them are comfortable paying with the same cards or wallets. Processing payments in local currencies, using local wallets, or other local payment methods increases conversion rates dramatically compared to relying on a single card network.
Chargebacks and Disputes Management
Since one of the reasons why high-risk businesses are classified as such is their chargeback risk, any processor worth its salt should have robust dispute management and resolution tools. KoiPay helps its merchants reduce chargebacks and manage disputes efficiently, keeping the account in good standing with acquiring banks.
Why Do You Need a Conversion Rate of More Than 96%?
When viewed from the merchant’s perspective, a bank or payment processor’s conversion rate is the percentage of authorized transactions that are settled in the merchant’s favor. In other words, once the bank approves the customer’s payment, the merchant should be confident that they will receive funds in their account after settlement.
By contrast, the authorization rate indicates how many transactions the processor managed to authorize out of the total number of transactions initiated by customers. The two figures are critical to a merchant’s profitability, with the conversion rate helping to determine the size of the revenue per transaction.
A conversion rate over 96% may seem outrageously high, but it’s the type of figure that many high-risk processors should strive for. The truth is that most high-risk processors have a conversion rate that rarely exceeds 88%, with the average hovering around 81%, according to industry estimates. It may seem like a small difference, but in absolute terms, it can be substantial.
Consider a hypothetical situation where a merchant processes $500,000 in attempted payments per month, and an 85% conversion rate means that $425,000 in revenue will appear in the merchant’s account at the end of the month. If their conversion rate increases to 96%, the amount of money will increase to $480,000, an additional $55,000 for the same number of customers and roughly the same expenses.
Who Needs a Specialized Processor Like KoiPay?
Although KoiPay processes a wide variety of high-risk payments, most businesses that use it fall into several broad categories. Subscription-based businesses can benefit from improved conversion rates, as can those with high chargeback rates that struggle with frozen funds.
CBD, nutraceuticals, online gambling, travel and hospitality, telehealth/digital health, forex, and crypto trading are a few of the industries that can benefit from using a specialty payment processor. These are just some of the industries that KoiPay is able to provide services to, and there are plenty of others that fall under the umbrella term of “high-risk.”
What to Ask When Looking for a Processor for Your High-Risk Business
When looking for a new payment processor, there are several important factors that a merchant should take into account. In many ways, the differences between processors reveal themselves through the kinds of questions that a merchant representative asks.
Some of the most common questions include:
Do you have multi-bank support?
When comparing processors, it’s essential to ask whether the payment platform uses multiple acquiring banks or has a relationship with only one. The latter option should raise red flags, as it puts all of the merchant’s eggs in one basket.
What is your conversion rate?
Conversion rate is one of the most critical metrics a merchant should pay attention to when selecting a processor. Ideally, the figure should be over 96%, although most traditional processors do not reach it.
What fees do you charge?
Most high-risk processors operate on a higher fee scale than standard processors, and it’s essential to understand what additional costs can be expected. Some processors may use reserve accounts to protect themselves from chargebacks, which can affect how much money a merchant has access to at any given time.
Do you have dispute management tools?
All processors should be able to handle disputes, but a merchant should ask how exactly the support team plans to handle them. An experienced team will know how to resolve most issues without damaging the merchant’s account in the process.
Will you be able to support me as a(n) [industry] business?
Many high-risk processors operate in several industries without fully understanding the intricacies of each. A merchant in the telehealth industry will have different needs from someone in the CBD niche, and the two should be able to communicate on the same page to address the unique challenges.
The Hidden Costs of Using an Inexperienced Processor
When comparing specialty high-risk processors, most would assume that all costs are itemized and explained upfront. After all, a merchant has to pay for each transaction processed, plus additional fees, and there should not be any financial tricks.
However, there are several ways in which an inexperienced processor can cost the merchant significantly more than they expect, either intentionally or not.
Unreachable support. The customer support team may be one of the most critical aspects of a payment processor, and some processors fail to live up to their end of the bargain, providing inadequate support to merchants.
Increased chargeback risk. Even if the processor does not have explicit restrictions in place, the merchant may find that their account is placed on hold more frequently than before.
Additional transaction costs. It’s not unusual for processors to add extra fees beyond standard interchange and other transaction costs, especially if they are unfamiliar with the high-risk industry.
Lost customers. If a merchant has frequent issues with customer payments being declined, it will affect their conversion rate while also potentially damaging the customer relationships. An angry customer who has tried to pay unsuccessfully several times may be less tolerant of future issues.
Delayed funds. When dealing with high-risk industries, most processors will place some form of reserve on the merchant’s account, preventing them from withdrawing funds immediately after a transaction. While a rolling reserve of 10% is standard, it can quickly add up if the account is undervalued.
Calculating the True Conversion Cost
For many merchants, a conversion rate over 96% seems like a fantastic achievement, and they may wonder how much it costs to reach this target. There are several critical points to consider when determining the value of a 2% conversion increase, including the number of attempted payments and the difference between the industry’s average conversion rate and 96%.
Ideally, a merchant would have a complete breakdown of attempted and successful payments that would give a realistic estimate. The attempted payments figure is relatively simple to obtain, as most processors have it readily available. Once the two figures are known, a merchant can use the following formula to estimate their lost revenue:
Lost revenue = attempted payments x (conversion rate – 96%) x 12
In reality, most merchants who have calculated their lost revenue using this or a similar formula were shocked by the results. For some, the sum was several times higher than their monthly revenue, which made it easy to justify switching processors.
Common Concerns When Changing Payment Processors Explained
When shopping around for a new payment processor, many merchants will have questions about the transition. Here are some of the most common concerns:
Switching processors sounds complicated and disruptive. How can you ensure that everything goes smoothly?
The switching process does require some careful planning, but it should not disrupt regular operations. In practice, merchants will rarely notice the change beyond potential billing adjustments, provided that the migration was executed properly.
I’m already approved by one of the processors, so I’m not interested in switching. Why should I change anything?
Being approved as a merchant is only the beginning, and most processors with high approval rates have little to no interest in maximizing conversion rates through optimization. It only takes a few minutes to request a conversion rate estimate from each processor to understand the value of switching.
High-risk processing is expensive, regardless of the processor. I don’t want to waste my time searching for the cheapest option since I can barely afford the one I have now.
The difference between the best and worst high-risk processors is rarely in their rates, as all of them tend to operate within a narrow range. Any changes to the processing fees are easily offset by a small increase in conversion, which more than makes up for the additional expenses.
Onboarding and Integration
When a merchant decides to switch to a new processor, they will be asked to provide extensive information about their business. Some processors require documents and additional information, so it’s always a good idea to ask what steps are required for onboarding.
The onboarding steps tend to differ depending on the processor and business needs but generally fall under the same categories. The most common include documentation, technical integration, configuration, and migration.
Document management consists of submitting personal or business information and any relevant data that the processor requested, such as the website’s URL, industry vertical, and product information. For some, providing documents can be the only step needed before they can start working with the processor. Others, particularly those in highly regulated industries, may have to apply for special permissions that the processor will review before acceptance.
Technical integration may be the most technical step, but it rarely takes that long to complete. The merchant will need to choose how they want to integrate the payment system, such as a hosted checkout page or an API for a self-hosted solution. Merchants using popular platforms like Shopify or WooCommerce will also be able to use apps or plugins to facilitate the migration.
Configuration and migration involve configuring the platform and setting up payment flows for the merchant. Some processors allow for a phased rollout, where some payments remain routed through the old gateway until the merchant is satisfied with the results before migrating the rest.
This approach is particularly useful for subscription-based businesses that experience recurring payments failures, also known as involuntary churn. Once the issue has been resolved, all payments can be routed through the new processor.
Conclusion
High-risk businesses require specialized payment processing solutions that regular banks and processors are unable or unwilling to provide. The conversion rate is the most vital statistic for any merchant in this industry, and a seemingly small 2% increase can make a massive difference in revenue.
A competent processor will have a broad understanding of all the factors that can cause a transaction to fail and will have tools to minimize these issues. Some of the most important ones include multi-bank routing, adaptive fraud filtering, and chargeback management, which are all available in the KoiPay platform.
