What is a high-risk merchant account?
A high-risk merchant account is a business account or merchant account that allows the business to accept online payments though they are considered to be of high risk nature by the banks and credit card processors. The industries that possess this account are Adult Industry, Travel, Forex trading business, Multilevel Marketing business. High-Risk is the term that is used by the acquiring banks to signify industries or merchants that are involved with the higher financial risk.
Who needs a high-risk merchant account?
If you can match your business with any of the below-listed conditions, then it is suitable for you to take the Merchant Account Service Provider in USA .
- Your bank doesn’t want to associate with your account due to your credit score or your company finances.
- If your business is getting higher chargebacks or you are having a higher dissatisfied customer for your business then certainly you need to consider a high-risk merchant account.
- If your industry is utilizing subscription-based services then there is the wide prospect that you are providing free trial services for your membership-based users. When free-trial-based users forget to cancel the subscription before the trial ends and gets charged for the first month, they often file a chargeback for the business.
- Business or industry has a reputation of being at risk, and then it could also damage the reputation of the bank. Industries such as gambling, adult entertainment, Casino merchants make banks a little nervous about how their conservative customers will see them.
- The merchant is providing the “future deliverable” products. Hotel rooms, event management, plane tickets, and reservation-based items.
- The merchant is having a poor history with your payment processor because you have been dropped, labeled as high-risk and other problems with your processor.
- Businesses are selling the high-priced commodity or product.
- Merchants are running their business from another country such as the Canada, European Union, Japan, and Singapore.
- Your business is listed in the Terminated Merchant File (TMF) or MasterCard Alert to Control High-risk merchant (MATCH) list. If you previously had a business and have been listed on one of these lists then your next business is considered to be risky.
- You have been in the business for a short time. The longer you are in the business, you are likely to become less risky, but takes a little bit of time to get there.
What are the differences between low-risk and high-risk merchant accounts?
When you start a new business you are going to start accepting credit cards. And when you do it, you are going to be classified under two categories: a high-risk or low-risk merchant account. So what is the difference between a low-risk and high-risk merchant account? Being tagged as a high-risk merchant account means that the payment service provider will consider you are at high risk of having higher chargebacks and refunds on your credit card transaction while with the low-risk merchant account, you are considered to be less prone to chargebacks. Here are some of the attributes from both the low-risk and high-risk merchant account.
| Low-Risk Merchant Account | High-Risk Merchant Account |
| If your business is getting an average sale of less than $50 | You have a high-value of commodity or product for sale. |
| You are having less than $20k/month in revenue. | Your business is the generation of revenue of more than $20k/month. |
| Your business is rarely accepting the card, not present transactions. | Your business frequently accepts card not present transactions. |
| The business involves a low chargeback ratio. | You are having a high chargeback ratio. |
| Your business is categorized as a low-risk industry. | Your business is categorized as the high-risk industry |
| Your business has good credit. | Your credit score is not good |
| Your business is having little to no fraud transactions. | Your businesses are having a substantial number of fraudulent transactions. |
| Your company has financial stability. | Your company is financially not stable. |
| It’s been a long time you are running the business. | It’s not been quite a long time for your business. |
High-risk merchant account fees
Setup Fees
Initially, you are required to pay the initial setup cost whether you are a high-risk merchant or a low-risk merchant. This is the fee that is charged for integrating the services to the merchant application. Though, high-risk merchants need to pay extra than the traditional merchants.
Discount fee
The discount fee has simply two models associated with it.
First, we will take MDR Merchant Discount Rate (MDR) is simply calculated based on the percentage of your turnover. While the other model is the Interchange Plus pricing model which is completely transparent which reflects how much the processor is making off you as profit.
Authorization Fees
Whenever a transaction is initiated there is an authorized fee to validate that transaction. If the card information is authenticated then the issuer bank allows the transaction to process and the transaction enters the settlement phase. If the transaction fails for any reason this fee is still charged even as the declined transaction.
Chargeback fee
A chargeback fee is a cost charged by your acquiring bank. When a chargeback happens, the merchant is hit with the chargeback fee, which is typically ranged from $20 to $100. The more you get the chargeback higher will be the fee. If you have higher chargeback in a short duration of time then you could probably lose your merchant account. So how you can prevent chargebacks? The best way to get rid of the chargeback is to stick to the policies and guidelines of each payment processing network. It may involve adhering to the PCI rules and current security standards.
How do I apply for a high-risk merchant account?
The merchant with varying needs requires different payment solutions for their business.
A merchant classified as a high-risk business has distinguished needs from the merchant who is classified as the standard risk. So depending on the nature of the business, the requirements vary. Now financial institutions don’t provide the flexibility to merchants that are associating with higher risk hence they don’t easily provide the payment gateway facility to high-risk merchants. Even though the merchant can get the required services from the dedicated service provider. Certain documents need to be submitted at the time of applying for the payment gateway services. These documents are:-
- Government authorized ID card such as Driving License
- 3 months of recent processing history
- 3 months of recent bank statement
- A void check
The service provider will allow you to have payment processing facilities within 5 to 7 business working days. Once you submit the required documents to them.
The pros and cons of a high-risk merchant account
There are various Pros and Cons associated with the high-risk merchant account. Let’s check them out.
Pros
- Companies that are in potential losses or having bad credit still has the flexibility to process the credit cards and accept payment, which can help recover the payment and get back to higher profitability.
- There is more protection from fraud and chargeback since the banks and financial institutions have labeled them as such they tend to take more precautions to protect themselves from a chargeback.
- Low-risk merchant processors don’t have the flexibility to get in touch with every sphere of the business.
- You are more likely to earn more since you are in a high-risk industry that means you are in an industry that involves high-profit margins.
- A reserve account can be really helpful against the chargeback.
- You are more likely to have flexibility with the global market, which means you can get your product or services anywhere in the world.
Cons of High-Risk Merchant Accounts
- You are required to pay more for the merchant fee and services. You usually pay a fee higher than the traditional processing fee.
- Based on your issuing bank and your payment processor, your rolling reserve can be on hold up to 180 days after the post merchant account closure.
What to consider when looking for a high-risk merchant account
Certain things need to be considered while looking for a high-risk merchant account facility.
Support: The merchant needs to have support from the service provider. In case if something goes wrong you can rely on your partner.
Prices: Prices may vary from provider to provider. Ensure that you are not paying any extra or hidden costs.
Professionalism: When getting in touch with the payment company, you need to find out for how long they have been in this business.
Get to know the need of your business so that you can avail the best payment services from the service provider. If you are looking for a Merchant Account Service Provider in USA then eMerchantPro is providing a unique payment solution to the merchants when it comes to high-risk business.
