In this increasingly digital and cashless economic world, more e-Commerce businesses must be fully adept to accept both credit and debit card payments online.
In order to accept card payments online, businesses need to open a merchant account. If you happen to be a high-risk merchant, let’s just say that this endeavor can get a bit tricky.
Understanding High-Risk Merchant Accounts
What is a high-risk merchant account and why is it so difficult to acquire one? First, let’s tackle what a high-risk merchant account actually is. A high-risk merchant account is a type of merchant account that is given when the payment processor has determined that the business is most likely to be prone to chargebacks and fraud.
These determinations are made based on the nature of the business, its location, as well as its financial history.
So why is it difficult to acquire a high-risk merchant account? Simply put, no processor wants to assume risk.
For those high-risk merchant account providers that are willing to take on the risk, they do so at a steep price.
Key Features Of High-Risk Merchant Accounts
High-risk merchant accounts usually come with the following characteristics:
- Rolling reserves – A savings account that does not accrue interest, and protects providers against chargebacks.
- Contracts – High-risk businesses can be locked into contracts for as long as five years, with automatic renewals. This can trap you and keep you from looking for a better deal. Getting out before the contract ends means steep early termination fees.
- Higher fees and rates – Regardless of personal credit scores, the nature of your business can be tied to higher chargeback rates, refund, and return rates. There are also setup fees. Higher processing fees can cripple your bottom line.
- Chargeback fees – Although to be expected, chargebacks will be assessed as a fee. However, this fee is higher than normal for each one that occurs.
Which Categories Are Considered High Risk
An important fact to take note of is that every processor differs in their determination of what business is considered high-risk. However, there is a standard list of businesses that usually make the high-risk category. Here are a few examples:
- Credit Protection & Counselling Services
- Gift Cards, Coupons, and Reward Point Services
- Bail Bonds, Check Cashing, and Financial Planning & Consultation
- Hypnosis, Horoscope, Psychic, Astrology, or Fortune Telling
- Multi-Level Marketing (MLM), Mail Order and Telephone Order (MOTO), and Online Auctions
- Travel Services (including Clubs & Agencies), Tour Operators, and Flight Charters
- Telemarketers, Timeshare Advertisers, and Holiday Rentals
How To Apply For A High-Risk Merchant Account
Although each high-risk merchant account provider may differ in what they may require at the beginning of the application process. Here are some standard requirements that they may ask high-risk merchants to provide:
- A processing history will include chargebacks, processing volume, and the number of transactions.
- Certification of incorporation
- A recent bank statement, complete with the business name and bank account details.
- Shareholder certificates
- The business director’s/owner’s identification.
- An organization chart detailing the business structure.
Other key elements that merchants must have is vital information on their business website, including:
- The legal name of the business
- A return/refund policy
- Contact information for customer service
- A secure website with an SSL certificate
Once all these documents and requirements are met. Certain providers will allow merchants to fill out an online application where underwriters will make a determination for eligibility for a merchant account. Some banks and other financial institutions may even require a credit check.
Overall, the cost of doing business as a high-risk merchant will be considerably higher. Although it may seem that no one wants to work with a high-risk merchant, the opposite is true. There are great, reputable, and professional high-risk merchant account providers ready to take your business to the next level and beyond.