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Discovering High-Risk Merchant Accounts

If you are a business that has been categorized as high risk, then you will already be familiar with the difficulty and complexity of obtaining payment processing services from banks and other providers. 

Why is it so difficult? It has to do with risk. This risk can be in the form of experiencing higher than usual chargebacks, as well as fraudulent activity. Traditional banking institutions and payment processors are not keen on exposing themselves to these or any types of risk. 

So what solutions are available to high-risk merchants who simply want to process their customers’ card payments online? Look no further than a high-risk merchant account. 

What Are High-Risk Merchant Accounts?

As the name implies, high-risk merchant accounts offer payment processing services for businesses that typically experience a high rate of both refunds and chargebacks. The reasons that you would fall under the high-risk category can include the following:

  • Persistent chargebacks
  • Poor credit history
  • Doing business with countries with a history of fraud
  • Credit transactions that average over $500
  • Monthly sales averaging over $20,000
  • New business
  • Insufficient monthly transactions (to calculate chargeback ratio)
  • Type of industry (e.g. gambling)
  • Excessive refunds
  • Fraud

Industries That Require A High-Risk Merchant Account For Processing Payments

As you seek payment processing services from a reliable merchant account provider, one thing to note is that all processors have their own criteria that determine what makes an industry or business high risk. This list is by no means exhaustive and therefore, as you shop around for the right provider, do ask them directly if they consider your particular business as high-risk.

  • Adult content
  • Airlines or airplane charters
  • Antiques
  • Auctions
  • Bankruptcy attorneys
  • Credit protection, counseling, or debt repair services
  • Dating services
  • Direct-response marketers
  • Drug paraphernalia
  • E-books (copyrighted material)
  • Event-ticket brokers
  • Fantasy sports websites

The Benefits Of Having A High-Risk Merchant Account

Besides enabling a high-risk merchant to accept both credit and debit card transactions, there are many benefits to opening a high-risk merchant account. Let’s take a look at a few:

  • Boosts profits
  • Accept multiple currencies
  • Chargeback protection
  • Processing of credit card transactions, despite bad credit or financial difficulties
  • Opportunities for growth 
  • Reserve account for surprise chargebacks

The Downsides To High-Risk Merchant Accounts

Although a necessary component of processing card payments, high-risk merchant accounts do have some drawbacks. The fact that they do serve the high-risk population means that providers must protect themselves from the inevitable fraud and other risks that are inherent in the high-risk industries. 

Generally, these are the types of challenges that high-risk merchants must face when opening a high-risk merchant account:

  • The application process is much longer (may ask for more detailed info)
  • Higher than average processing fees (can be up to 1.5% + interchange rate)
  • Reserve account, depending on the provider, which can be as high as 50% of the monthly volume
  • Rolling reserve that can be held up to 180 days after account closure
  • Higher chargeback fees (rates can be from $20 to $100)
  • Limits on credit card volume 

How To Find The Best High-Risk Merchant Account For Your Business

Look at merchant reviews, talk to others in the industry to get recommendations, and look providers up on the Better Business Bureau website. Get well-informed on which providers are serving their merchants best.

Apart from looking for the best provider for your business, you as a merchant must also do preliminary preparation to demonstrate to your provider that you are focused on operating a secure and profitable business. This will also increase your chances of landing a merchant account. Here are a few tips to help your business get “merchant account ready.”

  • Keep a healthy cash level

Providers do not want to see struggling businesses that are unable to keep adequate cash in their business bank accounts. By keeping adequate cash, it communicates to your provider that you are a healthy business that is financially stable and will not be a burden or risk to your provider. 

  • Cut down on chargebacks

Although chargebacks will creep up from time to time, don’t allow them to overtake your bottom line. Keep the chargeback ratio low, usually below 1%. This shows your provider that you have implemented strategies to keep chargebacks at bay. 

  • Be honest 

Be completely upfront with all the necessary information requested by the provider. There is no use in hiding pertinent information as it will come to light, resulting in the termination of your account. During the application process, provide all information regarding your business and finances. 

  • Have documentation ready

Processors will require you to submit important documentation related to your business, including a few years of tax returns and even your bank statements from the last six months. Every merchant account provider has its own list of required documentation that needs to be turned in during the application process. Do consult with them to get the exact materials needed. 

  • Agree to their terms

Working with a high-risk merchant account provider is more of a partnership that requires that both parties follow their respective duties as agreed upon in the contract. If one party fails to deliver, then the partnership suffers, affecting both businesses. In order to process payments securely and help your business grow, you as the merchant must do all that is possible to fulfill your end of the agreement and follow any recommendations.  

For any additional questions you may have about choosing the right merchant account provider, it would be best to make an appointment to have an in-person consultation. There, you can ask all relevant questions related to your business and further pursue their contract terms and conditions. 

Open Your High-Risk Merchant Account Today

Getting approved for a high-risk merchant account is a bit more involved than a low-risk merchant account. The best game plan is to be prepared by doing adequate research and having all the appropriate documentation ready to submit when you have selected a trustworthy merchant account provider.