Accepting credit card and debit card payments is the established way that businesses get paid in our modern economy. Cash only establishments have mostly disappeared into the ether and many have been forced to take credit and debit card payments due to fewer customers carrying wads of cash in their pockets.
If you are a business that happens to fall into the category of “high risk”, know that this has many implications. In order to accept any type of electronic payments, a high risk merchant account is in order.
Not sure what a high risk merchant account is? Read on to find out more.
High Risk Merchant Account Defined
At its very basic definition, a high risk merchant account is a “payment processing account” for any business that has been deemed high risk by a merchant account provider or processor.
Once you have decided that you will be accepting credit and debit card payments, know that there will be some costs involved. The most prominent credit card networks such as Discover, Mastercard, and Visa will charge interchange fees in order to take advantage of their network. Merchant Service Providers or (MSPs) will also charge you processing fees in order to link the “card issuing bank” to the acquiring bank through payment processors.
In order to protect themselves financially, both the merchant account provider and the processor charge certain fees for their services over and above the interchange fees that the credit card networks typically charge.
How To Know If You’re A High Risk Merchant
Now that we explored what a high risk merchant account is and what it entails, let’s look at the characteristics of what makes a high risk merchant.
First of all, every merchant account provider will have its own set of criteria that helps them determine if your business is in fact, a high risk business. Here are some general guidelines they use to categorize you as high risk:
- Your business is located overseas, but sells mostly in the US: This situation has a major potential for fraud, especially if banking regulations in your home country are too lenient.
- High chargebacks and fraud: This is mostly determined by the shopping behavior of your customers, not you as the merchant.
- Products or services that are legally questionable: Selling pornography or any drug paraphernalia would definitely flag you as a high risk business.
So You’re A High Risk Merchant, How To Apply For A High Risk Merchant Account
When you set out to apply for a high risk merchant account, you need to make sure that you seek out a reputable and trustworthy merchant account provider. You can always do your due diligence and seek reviews and recommendations from other merchants in the industry.
Much like applying for a traditional loan, there is an underwriting process that needs to be done by the account provider so they can assess the amount of risk involved by adding you to their portfolio of clients.
What they take into consideration is the following:
- Personal credit history
- Company finances
- The number of years you have been in business
- Merchant account history (if you’ve had a merchant account before), they will check for your history of chargebacks. Are you on the Terminated Merchant File (TMF)?
- Your merchant category code
Do keep in mind that your merchant category code will determine what rates you will end up paying for every credit card transaction.
This is just a basic overview of what being categorized as a high risk merchant entails. Do your research to determine which high risk merchant account provider will best serve you in your industry.