Why Are High-Risk Merchant Account Rates High?

Jul 26, 2017

If your business considered a “high-risk” enterprise, you probably already know how hard it is to acquire a reasonably-priced payment processing account. Merchant account applications from high-risk merchants are typically rejected by banks and other traditional lenders. And although many alternative processors will be willing to hear you out, their services usually come at much higher rates compared to those charged to mainstream businesses.

But why is high-risk payment processing so expensive? Are there any steps you can take to pay less?

The risk level

A merchant account is essentially a line of credit extended to a merchant for use in facilitating credit card transactions. When a cardholder purchases an item from your store, your payment processor – also called an acquirer – deposits funds into your merchant account, which it then acquires from cardholder’s bank at a later date. This gives you access to your cash before the customer actually makes payment.

Like all lines of credit, merchant accounts always come at a risk to the acquirer. A lot can happen between the time funds are deposited into the merchant account and the cardholder’s payment, including chargebacks, fraud and the business closing down.

Therefore, acquirers rightfully look after their own interests and will be reluctant to approve your application for a merchant account if they believe there’s a high possibility of you losing them money. And if they do accept you, they will often raise your rates to balance out the risk. That’s why high-risk payment processing is so costly.

Some of the reasons a processor may consider your business “high-risk” include bad credit, borderline illegal operations, potential financial and legal liability and operating in an industry that’s prone to excessive chargebacks or fraud.

Lowering your high-risk processing costs

Merchant accounts are hard to come by for high-risk merchants, but that doesn’t mean you lack bargaining power. Do your research to find a reliable and trusted provider that is ready to negotiate terms, so that you can receive all the services your business needs at a fair cost.

Additionally, read your contract carefully and ask all the questions you may have to get a clear understanding of the rates and fees. It’s also a good idea to obtain an account with an unlimited transaction volume rather than preset limits, which result in penalty fees when exceeded.

The important thing to note is that processors evaluate risk differently, depending on their approval guidelines. While one processing company may consider you a high-risk merchant and charge highly, another may be more lenient.

Therefore, don’t allow the general perception that high-risk merchant accounts are expensive to discourage you from doing business. If you find a decent processor during your search, step forth and apply. They may just end up offering you a great deal.

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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