What Are High Risk Merchant Accounts?

High-Risk Merchant Account - What is it?

A high risk merchant account is a payment processing account for businesses that possess great financial liabilities to the banks.

Before a high risk merchant starts processing credit card transactions, a merchant account provider will first review their application and determine whether they’re high risk or not. They will look at several factors such as credit score, processing history and the types of goods or services you’re selling.

Usually, high risk businesses have a monthly sales volume of over $20,000. These types of businesses also experience numerous cases of chargebacks and when faced with such risk credit card processing companies will ultimately reject your application. Additionally, one may be considered a high risk merchant if they deal in high risk goods such as firearms and drug paraphernalia.

You should also keep in mind that merchants operating outside the US, European Union (EU) Canada, Japan and Australia get labeled as high risk merchants.

On the bright side, having a high risk merchant account does come with plenty of benefits. Below we take a look at some of them.

Benefits of having a high risk merchant account

Although a high risk merchant account faces tougher contracts, it has an immense capability of developing your business.

To begin with, one can successfully create a high risk merchant account even after falling short with traditional banks.

In doing this, merchant account providers help high risk merchants get back on their feet by providing new high risk payment processing systems.

Having a high risk merchant account will also allow you to accept credit card payments which are gradually becoming more popular than cash or checks.

If you own an e-commerce business, having a high risk merchant account will attract new customers and ultimately increase sales. This will occur mainly because high risk merchants usually receive features such as shopping carts, electronic invoicing and e-check processing.

Which industries are considered high risk

One of the most popular high risk businesses is online gambling. It has numerous incidences of fraud and can also be used for money laundering. When faced with such risk, credit card processing companies may reject your application.

Another popular high risk business includes the “adult entertainment industry”. Selling any adult materials can get you flagged as a high risk merchant due to the controversial nature of the industry.

Selling pharmaceuticals and drug products can also put you in the high risk category. Payment processing companies often see these types of businesses as high risk because they pose a significant measure of harm to consumers if badly operated.

Travel and hospitality businesses are also considered high risk among many other businesses. If you’re not sure whether your business is high risk, contact your new processor’s customer support team first before signing your contract.

Differences between High-Risk and Low-Risk Merchant Accounts

There are many unwavering differences between a high risk and low risk merchant account.

First, high risk merchants process over $20,000 every month in credit card payments while low risk ones process less than $20,000.
Secondly, a high risk account accepts multiple currencies while a low risk account only accepts one currency.
The third main difference is that a high risk merchant account has an average credit card transaction of over $500 while a low risk account has an average credit card transaction of less than $500.

Additionally, high risk merchant accounts are created for businesses that deal in vulnerable goods and services such as gambling while low risk accounts deal in items such as books, clothing and office supplies.

The fifth main difference is that a high risk merchant account will endure higher fees while a low risk account will be able to accept credit cards at a much more reasonable and affordable price.

Last but not least, high risk merchant accounts often receive a longer contract term while low risk merchants can receive a two-year contract term or less depending on the payment processor.

High-Risk Merchant Fees

For high risk industries, credit card processing can be rather costly. There are some inconsistencies among processors; however, high risk merchants usually end up paying more than people who own low risk businesses.

Today, many payment processors still charge a setup fee for a high risk account while low risk merchants pay little to nothing.

Aside from the setup fee, high risk merchants also encounter per transaction fees for every high risk credit card payment, payment gateway fees and PCI compliance fees. Sometimes, high risk merchants may also end up paying a PCI non-compliance fee if the required security standards are not met.

As a high risk merchant, you might also pay monthly or annual account fees. In fact, there are high risk processors who charge only one monthly fee and an additional per transaction rate in an effort to make credit card processing cheaper.

A high risk account may also be subject to chargeback fees. These fees are subtracted whenever a high risk credit card payment is refunded and they are one of the main reasons why high risk payments are met with extra caution.

Being a high risk merchant also means you might pay early termination fees. An early termination fee is charged if a high risk merchant decides to close their account before the agreed date. A high risk account also pays a rolling reserve fee which acts as a security deposit. This fee protects the processor from risks associated with creating and running your account.

How to Apply for a High-Risk Merchant account

To get a high risk merchant account, you must first find the right credit card processor for your business. There are many companies that offer card processing solutions, so exercise caution and do thorough research on their products and services. Ensure your potential high risk processor has a reliable customer support team, payment gateway and fraud prevention tools. They should also have credit card processing equipment and a pricing model that will fit your business.

Once you find a reliable high risk processor, you can begin filling out your application. Some of the basic details required include name, business address, Tax Identification Number (TIN), phone number and email address.

The high risk processor might also require you to submit a few documents and certificates such as your business license, an article of corporation and bank statements. After submitting your application, the high risk processor will review all your details and determine whether you qualify for a high risk account. This can take a few days or several weeks.

If you meet all the requirements, the processor will approve your high risk account at which point you will receive an email or a call from one of their representatives or customer support agent, with further instructions.

Final thoughts

For high risk merchants, credit card processing can be a bit challenging at first. Nevertheless, we believe that finding the right merchant account providers can make a significant difference. To ensure you get the best deal, look for payment processors who offer affordable account fees, plenty of credit card processing equipment as well as multiple payment gateways and software. Finally, you should carefully read the terms of your high risk account and if you have any questions, feel free to contact the processor’s customer support team.

FAQ

What is a high risk merchant account?

A high risk merchant account is a payment processing account that’s given to businesses that are financially susceptible. With a high risk merchant account, you’ll be given credit card processing software such as card terminals which will grow your business.

Are all online stores in the high-risk category?

Many ecommerce businesses are considered high risk because they process card-not-present transactions. However, if you decide to open a high risk merchant account for your online store, the payment processor might label you as low risk depending on their criteria.

When a business is considered high risk?

Several factors might result in your business getting listed as high risk. If you have a high chargeback ratio or your business is fairly new, you may be considered high risk. Businesses that accept multiple currencies and high dollar transactions are also categorized as high risk.

Is it hard to get a high-risk merchant account?

Finding a payment processing company that will open high risk accounts will be challenging. However, there are service providers that specialize in high risk businesses. These processors offer unique services that can only benefit a high risk account.

Are high-risk merchant accounts more expensive than low risk ones?

Yes, a high risk account is more expensive than a low risk one. With a high risk account, you’ll pay more fees. However, many credit card processors are now introducing new high risk payment features that aim at reducing costs.