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What You Should Know About Highly Regulated Processors: Payment Processing 101

When running a business there are several operational decisions to make, especially when it comes to finances. But even more consideration is required when you’re running a business deemed to be higher risk. You need to understand what type of payment service is best for your company, which could directly impact your revenue. This is why businesses need a trusted payment processor that’s equally as convenient for customers.

The cannabis industry is currently one of the fastest-growing industries in the world. However, despite its growth, the industry is part of a highly regulated market. This means it faces unique challenges that other sectors do not have, like public opinion, tight regulations and finding a payment processor willing to take on this specialized business type.

This blog post will focus on what to look for in a payment processor, how they work and the differences between a regular payment processor and one that works specifically with highly regulated verticals.

What Is a Payment Processor?

A payment processor is a business involved in the transaction process that manages cashless payments by connecting the customer’s bank and the merchant’s account.

A payment processor acts as a mediator by debiting one account (the customer’s bank account) and crediting another (the merchant’s bank account) for all cashless transactions. They ensure a safe transfer of funds from the issuing bank’s account to the merchant’s account.

Having a payment processor is essential for accepting any type of electronic payment.

What Is the Difference Between High-Risk Payment Processors and Regular Payment Processors?

There are two types of payment processors: high-risk payment processors and regular payment processors. Here’s how they differ:

High-Risk vs Low-Risk Clients

High-risk payment processors have high-risk businesses as clients. But unfortunately, there’s no set definition of what a “high-risk business” is. Instead, each payment processor, bank or payment service provider has its own standards.

Generally speaking, your business could be considered high-risk if:

  1. It is a new business

  2. It is in a high-risk industry

  3. It accepts international payments

  4. It has a higher transaction volume or large ticket sizes

  5. Transactions are processed in an ecommerce / card-not-present environment

  6. Subscription/recurring payments are offered

Regular payment processors accept low-risk businesses as clients. Your business is considered low-risk if:

  1. It conducts business in one country using one currency

  2. It is in a low-risk industry

  3. It has a lower transaction volume

Higher Chargeback Fees

The greater the chance of a chargeback in your industry, the more your business is viewed as high-risk. Since there’s a bigger chance of a chargeback occurring, high-risk payment processors tend to increase chargeback fees for their clients compared to regular payment processors.

This means that on top of the refunded original amount, the high-risk merchant will have to pay a chargeback fee to their payment processor.

Cash Reserve Requirements

High-risk payment processors might hold on to some of the businesses’ cash as a way to protect themselves from financial loss. These cash reserve requirements are then integrated into the payment process using these methods:

  1. Capped reserve. After each completed transaction, the payment processor withholds a percentage of that transaction until a predetermined amount is reached. After that, the reserve remains untouched until it is required.

  2. Rolling reserve. This type of reserve is also sourced from some percentage of the transaction, but it is received by the merchant later, depending on the agreed-upon rolling basis.

  3. Upfront reserve/security. Instead of sourcing the reserve from transactions, the payment processor receives a set amount from the merchant upfront, which becomes the reserve.

Regular payment processors usually do not have such requirements for low-risk businesses.

What Are the Benefits of Using Sector-Specific Payment Processors for Your Business?


With an increasing number of online fraud and scams, you must protect your business with a secure way of transferring and receiving payments, including ensuring the protection of customer payment details. High-risk payment processors provide that security for both you and your customers.

This is because they use tokenization, a process that replaces the client’s card information with a set of characters called tokens. The issuing bank can only decipher these tokens during authorization.

At Merrco, we are PCI-compliant, so you can be assured that you and your customer’s bank information is safe with us.

Long-Term Growth

If you want your business to have long-term growth and expansion, you should consider partnering with a specialized payment processor.

Some merchants rely on recurring payments or large-sum transactions that provide a stream of income that helps their business grow. With a payment processor that understands your business and industry, there’s no reason why you can’t use this business model.

Use of Technology

Regulated-business sector payment processors like Merrco are always on the lookout for new technology and how those softwares or systems can be integrated to help you run your business better. More advanced and recent payment methods mean increasing your customer base, which could lead to higher revenue for your business.

An added benefit of using a payment processor is that they can help integrate your business website with ecommerce platforms, driving more customers to your business.

Health and Safety

Many companies shifted to online shopping to keep human contact to a minimum because of the pandemic. A payment processor helps keep you and your customers safe by minimizing or eliminating human contact through technology, even in person.

For instance, payment processors can provide your business with secure POS terminals that eliminate the need for cash registers.

How to Find the Right Payment Processor for My Business?

If you’ve decided to partner up with a sector-specific payment processor to grow your business, you must take some time to research all your options and find the best fit.

First and foremost, you need to find a processor who specializes in your specific industry, be that CBD or any other services deemed to be high-risk. You can find them in trade magazines, websites or direct marketing.

Since high-risk businesses vastly vary in needs and risk factors, most payment processors rely on custom pricing. In this case, you won’t be able to find rates or terms publicly available on their websites. Instead, you can set up a consultation and determine if the costs meet your budget.

Besides finding out the payment processors pricing, you can use the consultation to learn more by asking questions like:

  1. What experience does the payment processor have in your industry, and what kind of support will you receive to grow your business?

  2. How long will it take to access your funds, and will there be a reserve requirement? If so, what type?

  3. Under what kind of circumstances can the terms of your future agreement change?

If you’re satisfied with your consultation, you can begin your application process.

How Does a Payment Processor Make a Decision?

After you’ve submitted your application, you might wonder how a payment processor decides whether they want to partner up with you. There are three key considerations:

  1. Understanding your business. After having a conversation with the business owner, payment processing companies need to consider what factors make the industry high-risk and how your business can benefit from their services.

  2. Thinking about long-term benefits. As selecting a payment processor often opens the doors for a long-term relationship, payment processors need to ensure that your business is a good fit both financially and for long-term growth.

  3. Finding the right banking partner. Once the application has been approved, you will need to make sure you have a bank account. Many sector-specific payment processors have relationships with partner banks to help them identify the best match for your business.

How Can Merrco Help?

Here at Merrco, we are invested in helping your business thrive by providing seamless, innovative and secure payment solutions for companies in the cannabis industry in Canada and CBD sector in the U.S. We offer the perfect payment processing services for your business, including retail, ecommerce, click and collect and many others.

We are committed to providing your business with a safe, easy and fast payment processor. If you would like to know more about how we can help you, contact us at, or you can call us on our toll-free number 1800-957-0534.

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