High-Risk Merchant Account: What it is & How it works?

Having an online business that comes in the “high-risk” category, you may work hard in finding the right high-risk merchant account. But who specifies if a business is high-risk? And what facets specify the risk? In this blog, we’ll assist you to understand all this and more, and you can be ready to choose the right payment services provider for your business requirements.

What do you understand by a High-risk Merchant Account?

Businesses that are labeled as high-risk will require a high-risk merchant account to receive debit and credit card payments. A high-risk business has a more prominent possibility of chargebacks or fraud and some other aspects also.

However, there is no major authority or framework in the payments industry that specifies the risk factors evaluated by a business. Rather, every bank and every payment processor has its own set of criteria.

Some payment solution providers may express clearly that they don’t cater to some specific industries. Others will generally strive for detailed information about a business to authenticate the risk that relies upon their application may be approved or declined. Eventually, it all burns down to a payment processor’s internal criteria and perspective toward risk management.

What Factors Decide If a Merchant Is High-risk?

Businesses from some specific industries that naturally involve higher risks may be automatically marked as high-risk businesses. Here are various examples of high-risk industries:

  • CBD (Cannabidiol), e-cigarettes, and vape
  • Stun guns and tasers
  • Credit repair
  • Multilevel Marketing (MLM)
  • Adult products/services
  • Pawnshops
  • Supplements and nutraceuticals
  • Tech support
  • Search Engine Optimization (SEO) services

Excluding this, various aspects could lead to labeling a business as high-risk.

  • Most payment processors could mark you as high-risk if you are a newcomer and have never processed a single payment before.
  • Poor credit records or low credit scores for insolvency on loans, etc. are other specific factors. If a processor has kept you on the Match List, that can also increase your perception of risk.
  • The same implies to businesses that have suspicious products or run a business on a greased legal pitch.
  • Businesses that extremely depend on international sales may also have high-risk issues. This is due to the appropriate unpredictable financial dynamics abroad.
  • Industries that are favorably restricted by legislation or governments are also marked as high-risk.

How Do High-risk Accounts vary from Standard Accounts?

Being classified as a high-risk business may appear to be fairly daunting. A payment processor may simply refuse your application. However, a payment processor may opt for compensating your inherent business risk by executing some measures.

There are various ways in which a payment processing company may reduce its risk. There are also the main distinctions between high-risk and standard merchant accounts.

Lengthier application process. If you are applying for a high-risk merchant account, a merchant service provider may ask for precise information to observe your risk profile or research past patterns of your economy. Generally, payment processing companies will analyze your business’s processing history, partnerships, and even your credit score.

Higher payment processing fees. For standard businesses, payment processing fees may be 0.3% over the rate of interchange. However, for a high-risk merchant account, this may be up to 1.5% added to the interchange rate. Whereas interchange fees may differ from business to business, generally, higher risk will sustain higher fees.

Higher chargeback fees. When businesses require to process refunds, they must pay chargeback fees to their payment processor. For businesses that have a high chargeback ratio, these charges may be more elevated to compensate for the risks of absurd chargebacks. These rates may range anywhere between $25 to $98 each. Businesses with high chargeback ratios such as clothing brands could consequently deem the heat.

Volume caps in credit card processingSome credit card processors may simply stop you from processing any more transactions if your sales volume surpasses a specific limit. Processors assume that risks may be augmented when trading with elevated volumes.

Cash reserve requirements

Most payment service providers might even evade a specific amount of cash for a business. They may handle the points of this reserve in several ways:

  • Rolling reserve. A high-risk payment processor keeps aside a ratio of every transaction that you process. This could be as much as 10%. For example, if you have a six-month rolling contract, you get the credit from January to July.
  • Capped reserve. The processor retains a specific ratio of each transaction until the cash reserve goes to a preset stage. At this point, the per-transaction assistance will stop but the reserve will stay.
  • Upfront reserve. A high-risk payment processor accepts a fixed amount from the merchant upfront. Sometimes, the processor may even hold all transactions until the merchant delivers the stated amount.

Opt for a right High-risk Merchant Services Provider

As a high-risk merchant, you can find standard pricing information for high-risk merchant accounts on a provider’s website or other public venues. Rather, you might be required to organize meetings or personal consultations with their brokers to put forth your case.

You can start by documenting some payment processors that are likely to serve your industry. When you have some options with you, you must look at what each one carries to the table. Pursue clarifications on the following:

  • What kind of knowledge do they have operating with businesses in your industry?
  • How long does it take them to settle funds?
  • Do they have a reserve requirement?
  • Excluding credit and debit cards, do they sustain eChecks and ACH payments?
  • Will they assess an earlier termination fee in case you turn to another provider in the future?
  • What kind of equipment (POS machine, virtual terminal, etc.) you will get?
  • How strong and available is their customer service?

How to apply for a high-risk merchant account?

For a high-risk merchant account, you will have to fill out an application online. Moreover, to receive card payments you also have to search for a dedicated high-risk payment processor.

The procedure of applying for a high-risk merchant account is quick and easy. For example, if you select Amald as your payment partner, we will help you find a bank that fulfills your business requirements. When your business is authorized by the acquiring bank, you can begin processing payments online or via mobile.

You should prepare these documents before applying for a high-risk merchant account:

  • Incorporation certificate
  • Partners certificate
  • copy of your ID and utility bill of all the local directors and shareholders having more than 15%
  • Last six months’ processing history (total volume, no. of transactions, chargeback percentage)
  • the license number of your company and the name of the organization that administered the license.

Final Words

As it is completely clear from the above discussion, some businesses follow intrinsic risk factors. The meaning of “high risk” differs from one merchant and one payment processor to the next. Essentially, there are various payment processors whose entrance is easy but merchants operate businesses at the risk of being shut down at any time.

By opting for a payment processor like Amald, you can be relaxed that there won’t be any unfortunate business stuck surprises later on.

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