Who is a High Risk Merchant?
Any merchant who has one or more of the following characteristics is considered high risk:
- irregular high-ticket sales
- a record of high chargebacks
- Falls in an industry that major banks are not willing to support, or
- Any other highly regulated industry.
Note that this high risk merchant account classification depends on your industry category despite your individual company’s track record. Moreover, merchants who have been abandoned by a past credit card processor, businesses whose owners have low credit scores and companies located outside the United States all fall in this category.
Why Merchants are branded High-Risk
Your bank’s underwriting regulations will determine whether you are high risk or not. Therefore, every processor or banking institution calculates risks in a different way. Generally, fraud and chargebacks will determine the level of risk. The more susceptible a business is to chargebacks, the higher the risk.
Though only one factor cannot be used to determine whether your business needs a high-risk merchant account, the following factors will also influence the decision:
- Size of business
- Location of business
- Credit Card Processing History
- High Chargeback Ratios
- Credit History
- Industry Category
Although most merchants are only categorized as high-risk after accumulating excessive chargebacks, some normally benefit from these accounts. The advantages include; recurring billing, multi-currency options, increased allowances on sales volume, and recurring billing.
How does one get a high risk merchant account?
The easiest option is to apply with a nearby merchant account provider. After taking you through their application procedure, your processor sends it to the underwriting team for reviewing. As soon as you’ve been approved, you can start accepting payments. This is usually very easy for high risk merchants as most high risk processors will readily accept any legitimate business as long as you submit all necessary credentials and meet pre-set requirements. Most of them will ask for:
- A valid ID, e.g. a driver’s license
- Printed Voided Check or bank letter
- Most recent bank statements ( for the last 3 months)
- Processing statements (for the last months but only if applicable)
- A Social Security Number (SSN) or Employer Identification Number(EIN)
- Your Chargebacks must be below 2%
If your business is considered high risk then you most probably need to consider a high risk merchant account if have to begin processing payments as soon as possible. Don’t waste your time applying with banks as they won’t accept you.