What You Need To Know About High Risk Merchant Accounts

A small business starts off with a cash-only payment model and then slowly starts accepting cards and debit cards. If you are looking to grow your business, you will invariably need to move on to multiple payment options methods.

However, the more payment models and methods you add, the more the possibility of your business being classified as high-risk. If your business is such (which we assume it is), you would be dependent on multiple e-payment options.

This would require you to take a merchant account to fuel the further expansion of your business. In this article, we are going to help business owners and CEOs understand all they need to know about high risk merchant accounts. We are going to discuss their benefits and understand how you can apply for them.

High Risk Merchant Accounts: A General Overview

According to NerdWallet, “A high-risk merchant account is required if a business with a greater risk of fraud or chargebacks – or with certain other characteristics – wants to accept credit card payments.”

In general, payment-processing financial institutions offer built-in merchant accounts to businesses. However, many such companies would not like to work with high-risk businesses. This is because they assess a business beforehand before they offer merchant accounts.

Hence, businesses with high risk operate with high risk merchant accounts. Some examples of high-risk businesses are tobacco businesses or businesses that deal with firearms. In other cases, some businesses might sell internationally and might have subscription pricing. Apart from that, a business with not much cash in the bank is also a high-risk business.

Thereby, high risk merchant accounts help such businesses to operate on a regular basis by receiving credit and debit card payments.

What Is A High-Risk Business?

There is no determining factor of a high-risk business. This is because there is no central authority or framework in the payments industry that has a definition of what is risky. Furthermore, each payment processing institution has its own standards of what is risky and what is not.

However, there are some companies that tell you beforehand that they do not work with businesses from certain industries. On the other hand, there are some companies that welcome all applicants but review them before they work.

In general, payment service providers are more stringent than merchant account providers when it comes to reviewing what businesses to work with. However, in both cases, these companies will ask you (a high-risk business operator) to submit an application. This application will contain specifics of your business.

Basically, in the end, the payment processing company will make a decision about your application on the basis of their internal criteria.

High Risk Merchant Accounts: What Are They?

Generally, with the help of high-risk merchant accounts, businesses with high risks can also accept credit and debit card payments.

According to banking experts, high risk merchant services are an industry niche where the chances of fraud, failed transactions, and higher chargebacks are notoriously high. Payment processing services bear the highest risks when they proceed with the transactions on behalf of your business.

Businesses that operate in this industry niche need to ensure that their customers do not end up suffering in terms of their payment options. This means that businesses need to work with financial companies and evolve suitable experiences that can benefit customers, from payments to order cancellations, refunds, and more.

If you are a business looking at options for a merchant account for your retail credit card processing, you could visit https://www.easypaydirect.com/merchant-accounts/retail-credit-card-processing/ for more information.

Businesses, which are operating in the following spheres are usually considered to be high-risk by financial experts-

• Dating sites
• Adult-themed entertainment
• Gaming platforms
• Betting websites
• Brokerage platforms
• Referral sites
• Shipping and Cargo Services
• Lottery businesses
• Subscription-based models
• Networking and MLM sites

If you see the nature of the businesses, you will realize that the chances of cancellation, refunds, or legal issues are more than they are for other businesses. Business owners and CEOs who are in charge of running the above-mentioned businesses should find out about high-risk merchant accounts.

Businesses, which have monthly sales of more than $20,000 USD incur credit card transactions banks stipulate higher than $500 USD to be high-risk. You might say that this is too low of a limit. However, when you take into account the cumulative figure by adding up thousands of businesses for a payment processor, the figure becomes a huge number.

High Risk Merchant Accounts Vs Regular Accounts

The following are the major differences between high risk merchant accounts and regular accounts:

• The payment processing fees are higher than normal. For example, a standard small business account will have a processing fee of 2.6% + 10 cents. However, the processing fee of a high-risk merchant account is 2.95% + 25 cents.
• Standard small business accounts are approved within minutes. However, high-risk merchant accounts take a lot of days for approval. Here, you will have to share multiple information about your business and your credit.
• If a customer disputes a charge on your account, you will need to pay a large chargeback fee ($20 to $100).
• You will also need to have a strong cash reserve if you want to get a high-risk merchant account.

How To Apply For A High-Risk Merchant Account?

Many business owners feel that the process of getting a high risk merchant account is difficult and complex. However, the fact of the matter is that it is quite simple and easy. The first thing someone who wants a high risk merchant account needs to do is fill out an online form with a credible payment processor.

Once the payment processor is on board, they will contact a bank that is willing to underwrite your business. For the same, you would need your standard documentation.

• The company certificate for incorporation
• Shareholder’s certificate (if you have multiple ones)
• What is the percentage breakup of ownership among Directors?
• Official Documents like Social Security Numbers, Passports, Voter IDs.
• Payment and Financial History of at least the last six months of the business
• Certifications and Licenses from government authorities, which govern the business

Once you have all the above in order, you need to submit the same to the bank. The bank’s experts will then judge whether your business is high-risk or not and what should be the terms and conditions they would be working with.

Banks are also going to view the credit card transaction history of the brand. In addition, you should be willing to discuss the nature of the business with the banks in an honest and transparent fashion.

What Are The Benefits Of Using A High Risk Merchant Account?

To classify a business as high risk does not necessarily mean that the company is in problems. Many of the world’s most successful and profitable businesses are classified in the high-risk category.

Business owners can get a lot of benefits when they start using high risk merchant services. Let us list some of the major benefits below.

As compared to low-risk businesses, which are limited to just credit card collection, high-risk businesses can do a lot more. They can-

1. Run special sales, launches, and events to promote a sales flurry
2. They can offer their customers a recurring payment model
3. They can also sell multiple products and services from a single platform (think e-commerce).

Global Expansion – A high risk merchant account allows businesses to even accept international payments in different currencies. This means that you can do business internationally and reach out to target audiences in different parts of the world. A business that harbors international ambitions should definitely go for a high risk merchant account.

Protection from Charge Backs – At any given point in time, businesses need to protect themselves against high chargebacks. If a business has a high risk merchant account, they can pause other payment modes upon requesting their payment processor and banks.

Diversifying Business Portfolio – Many business categories and niches are very lucrative and profitable. However, they are classified as high-risk. However, that should not stop enterprising entrepreneurs from expanding the scope and nature of their operations.

More Profits – More sales, product portfolios, and access to foreign markets means that your business will stand a good chance of generating higher revenues and profits. This will also allow business owners and other shareholders to become richer and increase their earnings comparatively.

The Final Word

As you can see from the article, there are multiple things, which businesses need to know about high-risk merchant services. There is a lot of doubt and uncertainty as soon as a payment processor or a bank classifies a business as high-risk. However, that is simply borne out of ignorance and lack of credible knowledge regarding the same.

In this article, we have tried to help business owners by pointing out some of the major aspects of high-risk merchant services and accounts. We have discussed the definition, the paperwork, and the due diligence required, as well as pointed out some of the major benefits.

It is important for business owners to assess everything before they proceed with a high risk merchant account. Yes, as a business, you will have to pay an extra premium to the payment processor and the banks. However, it is both, an insurance strategy as well as a growth mechanism for your business.

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