A Closer Look Into High Risk Merchant Accounts

Oct 13, 2021

Thinking about launching a business that could be categorized as high risk? In order to process payments online, you will need a high risk merchant account. 

First, let’s begin by defining what a merchant account is. A merchant account is essentially a “middleman” that bridges the gap between your current payment system and your business account. Another way of seeing it is that a merchant account is a “holding place” where transactions can be verified and from where refunds and chargebacks can be issued. 

How High-Risk Category Is Determined

Payment processors classify a merchant as high risk for two reasons. First, their business operates within a high-risk industry and second, they have demonstrated high-risk behavior. 

Payment service providers have a list of industries that are considered to be high risk. This list includes:

  • Adult
  • Gaming
  • Gambling
  • Pharmaceuticals
  • Multi-Level Marketing
  • Electronic cigarettes
  • Cryptocurrency

Although these aforementioned industries are typically considered high risk, they are by no means a comprehensive list. Also, depending on the provider, there are some industries that can be considered high risk while others are not. It is best to ensure what their specific policies are.

Your business can receive the high-risk designation if you have engaged in the following behaviors:

  • Money laundering
  • Receiving a high number of chargebacks
  • Violating terms and conditions
  • Bankruptcy
  • Facing convictions for fraud

If your provider has determined that your behavior is serious enough, you could be placed on a MATCH (Member Alert To Control High-Risk Merchants) List. Unfortunately, this is not a list that you want your business to be featured in.

MATCH is the “rebranded” version of the previous Terminated Merchant File (TMF), which was created by Mastercard to assist acquiring banks in identifying high-risk merchants before doing business with them. 

If you are currently featured on the MATCH list, this does not mean that you will have your current merchant accounts that are in good standing automatically shut down, however, it does mean that you will have a difficult time opening up new ones while on that list. 

What A High-Risk Merchant Account Entails

One thing is certain, when you seek out a high-risk merchant account, the most prevalent occurrence you will encounter will be the significantly higher costs to process payments.

However, this is not all. Here are more factors to consider when opening a high-risk merchant account:

  • Chargeback fees: In the event of a chargeback, the processor will charge a fee. Compared to low-risk merchants, high-risk merchants will pay higher chargeback fees. 
  • Liquidated damages clause: If you fail to meet the requirements of your contract, you will be faced with an early termination fee, plus pay additional fees according to your liquidated damages clause.
  • Tiered pricing: Commonly used in high-risk industries, this pricing structure protects against the costs of chargebacks. The main issue with tiered pricing is that it can cost merchants a lot more in interchange fees. 
  • Automatic renewal clause: Another common practice seen within high-risk merchant account contracts is a certain clause that prolongs the terms of the contract well beyond the expiration date. Take the time to review the contract closely to identify the steps to give proper notice to prevent the contract from renewing automatically. 

The Bottom Line

With a plethora of high-risk businesses flourishing in their respective verticals, it is easy to assume that these entrepreneurial endeavors have a low barrier to entry. The truth is that most traditional payment providers will not work with high-risk merchants, regardless of how lucrative the industry may be.

Still, the spike in demand for high-risk merchant accounts has only increased opportunities for high-risk merchant providers ready to partner with high-risk merchants to equip them for success. 

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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