High-Risk Merchant Account: What Is It And How Does It Work?

Mar 03, 2022

As a high-risk merchant, it can be frustrating trying to find a qualified and trustworthy high-risk merchant account provider. Adding to the frustration is encountering shady providers who want to provide you with processing services but at an exploitative price.

What should be expected as a high-risk merchant is that you will pay for higher processing rates and account fees. The contracts tend to be for a much longer term, there may be early termination fees, and even rolling reserves. However, this is standard practice and should be expected as these providers are taking on considerable risk.  

What Is A High Risk Merchant Account?

A high-risk merchant account is a payment processing service that is provided for businesses that financial institutions have categorized as riskier than standard merchant accounts. This is due to a higher than average volume of chargebacks, history of fraud, financial insecurity, and a bad credit rating, just to name a few.

As previously mentioned, high-risk merchant accounts are required to pay higher than average fees and have to undergo more scrutiny in order to be approved for processing services. This has to do with the higher amount of risk involved with the business and its industry. 

High-risk merchant accounts may be subject to a rolling reserve, which means the payment processor withholds a certain percentage of your income in order to verify whether or not the transactions were fraudulent or at risk of having a chargeback. 

How To Know If Your Business Is High-Risk?

In order to determine whether or not your business is considered high-risk, a financial provider will take a look at your particular business and the industry in which it operates. 

For the business itself, these are the high-risk factors they look for:

  • How long the company has been in business. If it has only been in operation for a few years, this increases its risk.
  • Whether the company is financially stable
  • The “creditworthiness” of the owners and directors

For the industry, these are the factors they look into:

  • Its credit risk: If industries typically experience a delay between payment and the final delivery of the product, this is deemed higher risk. If the business goes bust before they can fulfill their order, the acquirer must assume liability.
  • Risk due to regulations: There are some sectors of industries that are highly volatile due to stiff regulations. This unpredictability makes it difficult to sustain any long-term business models, increasing the risk. 
  • Reputational risk: Banks must carefully guard their reputation. If they are at risk of damaging their reputation due to doing businesses with “frowned upon” industries, this poses significant risk. 

How Do You Apply And Get Approved For A High-Risk Merchant Account?

Once you have chosen a reputable high-risk merchant account provider, take the time to get a sample of their contract before you fill out an online application. Ask questions if you have any trouble understanding their terms. 

When the acquiring bank initially approves your business for a merchant account, you will need to send the following supportive documentation:

  • Incorporation certificate
  • Shareholders certificate
  • A copy of a recent bank statement that displays the company name and bank account information
  • A copy of a valid ID from the owner
  • If the business requires a license, provide the license number and the organization that issued that license
  • Proof of 6 months-worth of processing history (it must include total processing volume, chargebacks, the number of transactions)

Do Your Research

High-risk merchants no longer have to fret about finding a provider to process their payments. With so many successful high-risk businesses growing and prospering, this is a key indicator that a good processor can be found. 

Do your research, talk to sales reps, and get several quotes before choosing the best provider for your business.

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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