High-risk Merchant account: All You Must Know

 The idea of starting an online business is great especially in this era when every other business you see nearby has established its online presence. There are so many advantages of running a business online such as low investment, no physical warehouse requirements, and an automated process. On the other hand, the challenges are not any less than the advantages. One particular challenge is to find a merchant account for payment processing. 

The prospects of getting a high-risk merchant account are very low. The reason is that traditional banks and merchant account service providers fear extending their services to high-risk businesses because of excessive chargebacks. High-risk businesses require a high-risk merchant account, which is responsible for processing online payments for high-risk businesses.

High-risk merchant account is a broad term that might seem difficult to understand. However, if you aren’t familiar with the term, then you have landed at the right place. Here you can understand every aspect of a high-risk merchant account.

What is a High-Risk Merchant Account?

A high-risk merchant account is required by the businesses to process online payments that are considered to be of high risk to the banks and merchant account services providers. A high-risk business is susceptible to a high rate of chargebacks and frauds. This is why high-risk merchant account providers, who take the risks of processing high-risk payments, are difficult to find and charge a high rate for processing financial transactions.

Difference between low-risk and high-risk merchant account

One has to identify their business type before applying for a merchant account. So what is the process to know whether one needs a high-risk merchant account or a low-risk merchant account. Merchant account services providers have criteria to categorize businesses into high-risk or low-risk. Let us now discover some of the differences between the high-risk and the low-risk merchant account.

Low-risk merchant account

Although not every payment processor has a set of rules and guidelines defining a merchant account type, there are few characteristics that are common for all the players on the market.

There are some general indicators for a low-risk merchant account.

• Any business that processes less than $20000 monthly processing.
• The average credit card transaction is below $500.
• A particularly low or zero chargeback ratio.
• Any business which operates in any of the following countries is considered low-risk: USA, Canada, Australia, Japan, any of the European Union countries.
• Minimized return

High-risk merchant account

Whenever a business is associated with a higher risk of chargebacks, there are higher chances of that business being categorized as a high-risk business. Apart from this the other main factors that are included are processing history and industry reputation. One should have a chargeback ratio of less than 0.9% to not get categorized as a high-risk business.

Some of the features that are commonly associated with a high-risk merchant account are as follows.

• Monthly sales volume is more than $20000
• The average credit card transaction is higher than $500
• A business that deals with the products or sells products and services to countries known for high levels of fraud.
• Poor credit history and excessive chargebacks.

Who needs a high-risk merchant account?

All those businesses that fall under the category of high-risk businesses would require a high-risk merchant account to process payments. Although there are many businesses that would be considered high-risk based on the credit processing history, few of them are always considered high-risk regardless of their credit history. Given below are some of the most common high-risk businesses.

List of high-risk businesses

· Online Gambling, Online Gaming, and Casinos

· E-cigarettes and tobacco

· Telemarketing services

· Bitcoin Mining or Forex Trading

· Online Dating and Adult services

· Sports Booking

· Subscription-based services

· Cannabis Products / Head Shops

· Pharmaceuticals

· Travel and Advanced Booking

 

 

High-risk merchant account fees

Unfortunately, not only high-risk merchant accounts are difficult to get but also they cost more than low-risk merchant accounts. There are some charges that are unavoidable and along with that, you get ready to pay more in processing charges and account fees.

It should not be surprising that high-risk fees for high-risk merchant account were already fixed and decided many years back. However, today you can find payment processors that offer provide you competitive rates that are tailored to your business. Also, there are some high-risk payment processors that charge you the setup fee, monthly fee, and annual fee. Surprisingly, some may ask for a PCI fee. Some merchant account providers charge an early termination fee if you withdraw from the plan before the date on the contract. You should be familiar with such terms and conditions as they might prove dreadful later when you plan on changing your merchant account. Thus, it is always wise to look closely at the terms and conditions before you sign the agreement. 

Furthermore, you have to face another expensive characteristic of a high-risk merchant account that is a rolling reserve. It is used by the banks to protect themselves against any chargebacks or any unexpected activities such as fraud on your side. So, this reserve is usually formed by holding a certain percentage of credit card processing volume which is usually (5-10 %) and it particularly depends on the business model and the processed volume. High-risk payment processors usually hold this reserve for a defined period it could be anywhere between 6 months to 8 months. And after this time it is released. The amount of rolling reserve is determined by the level of risk that is associated with the business. 

Chargeback fees

You must know that the chargeback fees are applied when a cardholder files for chargeback and asks the bank to dispute the charge. It can be defined as the money charged that covers the administrative costs of processing the chargeback.

No matter how high the charges of high-risk merchant account go, you would always have the benefit of leveraging the large sales volume to negotiate fees and bring it down.

Application for a High-Risk Merchant Account

Getting a high-risk merchant account does requires some documentation. You have to fill the application form of the merchant account service provider that you choose to get your high-risk merchant account.

Below is the list of documents that you would need for the application.

1. Incorporation certificate
2. Shareholder’s certificate
3. A utility bill of local directors and shareholders holding more than 15%.
4. A copy of your passport
5. Organizational structure’s chart
6. Processing history for the last 6 months( It will include total volume, number of transactions, and a chargeback percentage)
7. The license number and the name of the organization that issued the license( It is required if you run a business that requires licensing)

 

Advantages and Disadvantages of a High-Risk Merchant Account

As mentioned earlier the most commonly known disadvantage of a high-risk merchant account is that a merchant has to pay higher fees and processing rates. Also, for a high-risk merchant account, you might also require reserve if the risk associated with the business is extreme.

On the other hand, there are abundant advantages or benefits of choosing a high-risk merchant account.

Global coverage

Since the most common feature of getting a high-risk merchant account is the ability to accept payments from multiple countries and in multiple currencies and that too in the safest and reliable manner.

Chargeback Protection

It will allow your business to avoid any methods that can spoil your business identity. It will keep your merchant account in good shape.

Business Expansion

A high-risk merchant account sets you free from all the limitations and boundaries. You can also deal in risky products that can yield more profits and hence more growth for your business.

Increased Profits

A large number of options to choose from for selling products gives you a good number of opportunities for earning good money.