Understanding the differences between high risk and traditional payment processing is crucial for businesses navigating the payment landscape. While both serve the fundamental purpose of facilitating transactions, they operate under different parameters, costs, and requirements. This comprehensive comparison will help you understand which type of processing your business needs and what to expect from each.
Definition and Classification
Traditional Payment Processing
Traditional payment processing serves businesses considered low risk by financial institutions. These businesses typically operate in established industries with predictable transaction patterns, low chargeback rates, and minimal regulatory concerns.
High Risk Payment Processing
High risk payment processing caters to businesses that traditional processors consider too risky due to industry type, business model, financial history, or transaction characteristics.
Key Differences Breakdown
Application and Approval Process
Traditional Processing:
- Streamlined application process
- Quick approval (often within 24-48 hours)
- Minimal documentation required
- Standard credit checks
- Automated underwriting for many applications
High Risk Processing:
- Extensive application process
- Longer approval times (1-2 weeks or more)
- Comprehensive documentation required
- Detailed business plan review
- Manual underwriting and risk assessment
- Bank statements and financial records analysis
- Industry-specific compliance verification
Fee Structures and Costs
Traditional Processing Fees:
- Lower transaction fees (typically 1.5-3.5%)
- Standard monthly fees ($10-50)
- Minimal setup costs
- Lower chargeback fees ($15-25)
- No or low rolling reserves
High Risk Processing Fees:
- Higher transaction fees (typically 3.5-10%+)
- Higher monthly fees ($25-100+)
- Significant setup costs ($500-2,000)
- Higher chargeback fees ($25-100)
- Rolling reserves (5-20% of transactions)
- Additional compliance fees
Contract Terms and Conditions
Traditional Processing:
- Month-to-month agreements common
- Standard termination clauses
- Minimal early termination fees
- Flexible contract modifications
- Standard industry terms
High Risk Processing:
- Longer contract terms (1-3 years)
- Stricter termination clauses
- Higher early termination fees
- Limited contract flexibility
- Additional protective clauses for processor
Transaction Limits and Restrictions
Traditional Processing:
- Higher transaction limits
- Fewer processing restrictions
- Standard hold periods
- Minimal transaction monitoring
- Flexible processing volumes
High Risk Processing:
- Lower initial transaction limits
- More processing restrictions
- Extended hold periods (up to 180 days)
- Intensive transaction monitoring
- Volume caps and gradual increases
Underwriting and Risk Assessment
Traditional Processing:
- Basic credit and background checks
- Standard financial verification
- Minimal ongoing monitoring
- Automated risk assessment
- Focus on creditworthiness
High Risk Processing:
- Comprehensive background investigations
- Detailed financial analysis
- Continuous monitoring and review
- Manual risk assessment
- Industry-specific risk evaluation
- Compliance and regulatory review
Customer Support and Service
Traditional Processing:
- Standard customer support hours
- General payment processing expertise
- Basic technical support
- Standard account management
- Self-service options available
High Risk Processing:
- Extended customer support hours
- Industry-specific expertise
- Specialized technical support
- Dedicated account management
- Personalized service approach
Technology and Integration
Traditional Processing:
- Standard payment gateway options
- Basic fraud protection
- Simple integration processes
- Limited customization
- Standard reporting tools
High Risk Processing:
- Advanced payment gateway features
- Enhanced fraud protection tools
- Complex integration requirements
- Extensive customization options
- Detailed reporting and analytics
Compliance and Regulatory Requirements
Traditional Processing:
- Standard PCI DSS compliance
- Basic regulatory adherence
- Minimal additional requirements
- Standard audit processes
- General compliance support
High Risk Processing:
- Enhanced PCI DSS requirements
- Industry-specific regulations
- Additional compliance mandates
- More frequent audits
- Specialized compliance support
- Know Your Customer (KYC) requirements
Chargeback Management
Traditional Processing:
- Standard chargeback procedures
- Basic representment support
- General chargeback prevention
- Standard ratio thresholds
- Limited specialized tools
High Risk Processing:
- Advanced chargeback management
- Comprehensive representment support
- Industry-specific prevention strategies
- Stricter ratio monitoring
- Specialized chargeback tools and alerts
Account Stability and Longevity
Traditional Processing:
- Stable, long-term relationships
- Predictable service continuation
- Minimal account reviews
- Standard renewal processes
- Low termination risk
High Risk Processing:
- More volatile relationships
- Regular account reviews
- Potential service interruptions
- Complex renewal processes
- Higher termination risk
When to Choose Each Option
Choose Traditional Processing If:
- Your business operates in a low-risk industry
- You have excellent credit and financial history
- Transaction volumes are predictable
- Chargeback rates are consistently low
- You need cost-effective processing
Choose High Risk Processing If:
- Your industry is classified as high risk
- Traditional processors have declined your application
- You have unique processing needs
- You require specialized industry expertise
- You need advanced fraud protection tools
Making the Transition
From Traditional to High Risk:
- Prepare for increased costs and requirements
- Gather comprehensive documentation
- Research specialized processors
- Plan for longer approval times
- Implement enhanced compliance measures
From High Risk to Traditional:
- Demonstrate improved risk profile
- Maintain excellent processing history
- Reduce chargeback ratios
- Build strong financial records
- Gradually transition with overlapping services
Conclusion
The choice between high risk and traditional payment processing depends on your business’s specific circumstances, industry classification, and risk profile. While traditional processing offers lower costs and simpler terms, high risk processing provides specialized services and expertise for businesses that need them. Understanding these differences helps you make informed decisions about your payment processing needs and set appropriate expectations for costs, requirements, and service levels. Regardless of which type you choose, focus on building a strong processing history and maintaining compliance to ensure long-term success.