High Risk Merchant Accounts
If you operate an online or e-commerce business you will need a high risk merchant account to accept and process credit cards. When you accept payments when your customer is not present that by nature have a higher risk of fraud and chargebacks. So what is a high-risk merchant account and how do you know you require one?
In order for you to open a high risk merchant account for your company you need to find a payment processor that specializes in that space. You should find one that has experience boarding your type of business to ensure a smooth approval process.
But First What is a High Risk Merchant Account?
A high-risk merchant account is a business that a credit card processor is more likely to lose money on. If you own a high-risk businesses you are susceptible to chargebacks. Merchant services companies lose money on chargebacks.
If you are a merchant with a history of a lot of chargebacks your payment processor may want a rolling reserve on your account. It is an additional percentage that is taken out of your sales and held for six months. A rolling reserve is an ideal way for a processor to hedge against chargebacks.
After six months you will start to receive the funds back retroactively. If your chargebacks improve your processor may remove your reserve.
What Are The Distinctions Between High Risk and Low Risk Merchants?
Before you apply for a merchant account it helps to know whether you’re a high-risk merchant or a low-risk one. Merchant services companies have their requirements for classifying merchants in accordance with their risk tolerance. There are certain elements that are taken into account to see which category you will qualify for.
What is a Low Risk Merchant?
Keep in mind that every merchant account provider has its own set of rules, however there are some standards that are typical for the major main stream processors. General indicators for low-risk merchants are the following (but there are many other aspects, and it’s based upon compliance’s general evaluation):
Less than $50,000 of monthly volume.
Typical credit card purchase is less than $750.
The industry that a merchant operates in is considered low risk (clothes, household items).
No or low chargebacks.
The country a company operates in is stable (European Union countries, USA, Canada, Australia, Japan).
Low amount of returns.
What is a High Risk Merchant?
The more chargebacks you have the greater the threat. The primary elements that matter are industry reputation and processing history. It’s recommended to keep your chargeback ratio lower than 2% of your total transactions.
Here are your basic guidelines that will make you a a high risk merchant. however keep in mind that it commonly varies based on a specific credit card processors preferences:
More than $100,000 monthly sales volume.
Average charge card deal higher than $1,500.
An organisation sells services and items to countries known for high levels of scams.
Bad credit report and excessive chargebacks.
Who Needs a High Risk Merchant Account?
An example of high-risk companies is the travel industry, as there are numerous factors there that can cause cancellations. This generally ends up with a variety of customers and refunds who file chargebacks. Some others are MLM, Cryptocurrency, Kratom and Online Pharmacy.
There are lots of other industries or organisation designs that are prone to chargebacks, so here’s the list of the most typical kinds of services that require high threat merchant accounts.
So, if you run an organisation in the markets discussed above and similar you require a high-risk merchant account to accept credit card payments on your website. If you are a high-risk merchant you need to deal with greater expenses of merchant account than regular merchants.
The Cost of Being High Risk
You will pay more when you are a high-risk merchant account. These are unavoidable expenses. So you should be prepared to pay more in processing charges and account costs.
High charges for high-risk merchant accounts were set as a standard several years back and today you can discover payment processors that will offer you more competitive rates customized to your company. You also don’t need to be stuck in long agreements running 3 to five years.
Some high-risk payment processors still might charge you a setup fee month-to-month and annual cost and a PCI. You should check out the contract appropriately. In addition an early termination charge might be use when you wish to close the account prior to the date on the contract. The details relating to your termination charge ought to be included in your agreement. You should read it thoroughly before you sign the agreement.
The payment processing market is moving on so you can find high-risk payment processors that charge you just for transactions that occur on your website.
A Rolling Reserve for High Risk Merchants
Another factor that you will need to account for when you have a high-risk merchant account is a rolling reserve. It is an additional layer of protection for chargebacks or unanticipated activities such as fraud cases. A certain part of your credit card processed volume will be held back normally 5-10%. The percentage depends on your business design and your processed volume. Your reserve account is held for a defined duration generally up to 6 months. After this the reserve is released to you.
Your chargeback costs is when your customer calls their their bank to dispute your charge. It’s the money that covers the administrative costs of processing the chargeback.
In general high-risk merchant account costs might cost you twice as much of the amount that applies to low-risk merchants. But if you run a website that processes a high volume of sales you can work out that cost with your merchant services provider.
How do I Obtain a High Risk Merchant Account?
To get a high-risk merchant account your first step is to get pre-qualified online. Naturally you want to go with a provider that has experience and a good reputation for high risk credit card processing.
The process of obtaining a high-risk merchant account is easy and short. For example if you pick us as your payment partner we will help you with a bank that matches your website requirements. When you get approved with us you can begin accepting credit card payments online.
What Do I Need to Get Pre-Qualified?
Our pre-qual process is very simple and streamlined. You would fill out our 1 page intake form first. We will also need to review 3 months of your bank and processing statements. If you do not have processing statement we can accept a brief marketing/business plan.
When we receive these items from you our underwriting team will have enough to make a decision. Within 48 hours we will provide you with a term sheet including rates and pricing.
Your file will be underwritten by our team. They will collect the documents on the list below to board your account.
The Advantages and Disadvantages of a High Risk Merchant Account
Among the most common drawbacks of high-risk merchant accounts is that you need to pay higher fees and processing rates. Banks will probably want you to have a reserve.
It appears that if you run an online company and you need to process payments with a high risk account is tough and features lots of limitations. So what exactly are the advantages? I’m glad you asked, your answer is Global Presence.
With a high-risk merchant account you can grow your company to the next level by accepting payments in multiple currencies. Given this ability you can access larger international markets throughout the entire world. This gives your company a huge advantage which far outweighs any disadvantage.
Broadening Your Business
With high-risk merchant account you can sell services or products that are not permitted when you have a low-risk merchant account. So it provides you more chances to diversify and for long-lasting growth.
When you have a larger selection of products you can sell to more people you will be rewarded with more profits for your business.
When you are looking for a high-risk merchant account, What to consider.
There are many processors in the industry that claim they work with high risk. You will find that the majority of those can not deliver the way that FinTechMerchantAccounts can. So do your homework before you pick your future payment partner.
Other Things to Consider
Responsive assistance. Take it from me that you are going to require somebody to call if you have problems with your payment system. Make sure that you get assurance that those issue will be dealt with in a timely manner.
Versatility and customization. You should look for a provider that offers you multiple payment options that fit your business needs. The more payment options that you add the more sales you will make. Just like if you took a payment options away your business would make less sales.
You should ask you payments rep to review their term sheet with you. Make sure that there are no additional or hidden costs that you are being charged for.
What you may be interested in is whether your prospective payment gateway offers multiple accounts. Ask for the payment platform’s APIs so that you will have full control over the setup and payment process.
Security signs. As a high-risk merchant, you require a payment partner that follows strict security rules and offers a set of anti-fraud tools that will keep your service far from the fraudsters. Make sure they offer a decent chargeback avoidance system and a multilayered approach to security.
Know how. Study to learn how long a payment company has been on the market and what’s the background of its leaders. Their proficiency and the knowledge of all ins and outs of specific niche industries position them as market leaders. It likewise ensures you that the payment platform you want to work with is trusted, so your money is safe.
High Risk Payment Processor Website
Visit the processor’s site to inspect their design and whether they publish upgraded information. Dated or fundamental website that makes you seem like back in time can be a warning sign that something is wrong with the business you consider.
Prior to you use for a high-risk merchant account, make sure that a credit card processor works with markets your business runs in. Keep in mind that reputable payment processors keep a list of supported business models and countries on their site.
Read their agreement carefully. Typically, you don’t find a sample contract online, but when you obtain a copy of the payment company’s terms, read them thoroughly.
When you obtain a high-risk merchant account, bear in mind that its terms might be stricter than those of a routine merchant account, so always read your agreement thoroughly. Check for covert or extra fees, rates, and how high is the rolling reserve.
Getting Your Pre-Approved Merchant Account
Depending upon your provider your risk factor is determined in a different way but it’s based upon the bank’s underwriting guidelines.
The main aspects that enable a provider to give you a high-risk merchant account are your history of chargebacks, the frequency of returns, industry credibility, or your credit history.
Finding a high-risk credit card processor that will be a perfect fit for your business is never simple. Try to find a payment platform that delivers top security level with a multilayered technique to effectively reduce suspicious activity and the variety of incorrect positives.
As you can see there are lots of reasons your company can be graded as high risk. If you set up a high-risk merchant account through a trustworthy payment platform, the process will be simplified without headaches.
There are certain companies with a higher possibility of chargebacks so it’s apparent that they include stricter terms. When you process credit cards through a processor like FinTechMerchantAccounts you can will be put at ease knowing that the chance of chargebacks and fraud will be decreased.
Still wondering whether you need a high-risk merchant account? Contact FinTechMerchantAccount.com to get pre-approved. Or call us at 617-918-7235
High Risk Merchant Account Explainer Video