The term ‘high-risk merchant account comes in handy to describe merchant accounts for businesses that are considered ‘high-risk’ (for example, new businesses, businesses with poor credit ratings, and businesses that are looking to take card payments).
We’re moving into a world where payments happen with cards rather than cash, in which it has become more critical than ever for businesses to take credit cards. However, it is essential to understand that not all high risk merchant processor accounts are created equal, and that’s why we’ve put together this page to help you know what they are, why you need one, and why it best suits your company’s needs.
What Exactly Is A High-Risk Merchant Account?
The term ‘high-risk merchant account’ refers to a payment processor’s label that your business has. A common reason for this label is that a fraud investigation or chargeback happens on your account, or maybe there have been several returns or chargebacks associated with your account.
As a result of being categorized as a high-risk merchant account, you should expect to pay higher processing fees as your payment processor will take on much higher risks due to processing your account with this payment processor.
What Makes A Business High Risk?
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After all, if your learners aren’t spending much time on the platform, they’re not engaged. Look for an LMS that can give you detailed reports on how much time learners spend on the platform overall and how much time they spend on specific courses or modules.
Categories Of High-Risk Businesses
Having your business tagged high-risk does not imply a moral judgment on your business. A high-risk business does not necessarily mean it is less prone, and there are often few benefits for all parties involved.
Poor business practices may lead processors to categorize your business as high-risk. The following criteria come in handy to assign this categorization:
- Your Industry
Businesses in your vertical and their past processing history are taken into account by risk assessors. In addition, they assess the number of refunds and chargebacks, the amount of fraud, and other factors. Newcomers to the industry may find this information helpful in determining their baseline risk. A vertical assessment can get referred to as a merchant category in the business world, and its identifier is present in your merchant category code (MCC).
- Your Financials.
Risk assessors will look at your finances to determine your performance in your industry vertical and other sectors. The analysis will consider the financial aspects of your company, such as your burn rate, debt-to-equity ratio, and overall profitability. Considering all of these factors is similar to opening a business credit line by considering all the elements.
- Your Billing Model.
During your risk assessment, you must explain what types of transactions you may be processing shortly. Low-risk transactions are those that are card-present transactions, while card-not-present transactions (CNP) are those that are higher risk. Subscriptions, like recurring billings, are considered high-risk transactions due to their recurring nature.
Risk assessors are particularly interested in the annual recurring billings of your business, as they could be liable if the company goes out of business within 12 months of the time they signed the contract.
High-risk business categories or industries exist in specific industries. The following are examples of high-risk businesses and products:
- Accommodations, travel, and ticketing agents
- Adult entertainment
- Cryptocurrencies
- Computer software and hardware
- E-cigarettes
- Magazines and similar subscriptions
- Online gambling, casinos, and gaming
- Online medication providers, drug stores, and pharmaceuticals
- Timeshares
- Telemarketing, calling cards, VOIP
3 Benefits Of High-Risk Merchant Services For Vendors
Among the benefits are the following:
- Credit Cards Accepted
Merchant accounts for high-risk businesses provide the ability to accept credit card payments for companies that would not otherwise be able to get one. Since this is an essential prerequisite for building and growing a business, most business owners feel it is a necessary cost associated with carrying out business and can accept the limitations of the high-risk account as part of that process.
- A Fewer Number Of Restrictions
E-commerce vendors dealing with merchant service companies that mostly do “low-risk” business are often subject to unreasonable limitations placed on them by these suppliers, particularly the low monthly processing caps. You can purchase products, payment options, and capacities that may not otherwise be available to you with the help of specialized high-risk merchant account providers. You can also transact internationally with these services.
- Chargebacks Are Less Stressful.
When you are dealing with a merchant services company unfamiliar with the vertical you are working in, you can run into problems, which get exacerbated when you work with a business in a high-risk category. Higher chargebacks aren’t always a problem as long as they are within the range of chargebacks for that business. If the company you’re working with specializes in these verticals, the chargeback level is not necessarily a problem.
What To Look For In High-Risk Merchant Accounts?
Payment processors that specialize in high-risk processing are the best choice. It is common for high-risk merchant accounts to have higher fees and more restrictive terms. However, they are more capable of handling your specific needs.
High-risk processor comparison should consider the following factors:
- Quotes Without Obligation
There is no standard fee schedule for high-risk processors. Instead, get a quote from them based on your needs. Make sure you don’t have any obligations. Comparing rates can be done at several places.
- Service To Customers
Reliable support is of utmost importance. To succeed in your business, you’ll need a dedicated payment processor.
Make sure you have an account manager dedicated to your company who will spend time learning about your business. Then, during the setup process and any subsequent problems, they will be there to assist you.
- Methods Of Payment Supported.
Take a moment to think about the different ways in which you will be taking payments: not only in-person but also online, contactless; invoicing; auto-recurring billing, telephone; ACH transfers; and even cryptocurrency.
If you wish to take payments in a manner that suits your business, the processor should provide you with the hardware and software to do so.
- Growth Potential
Payment processors should be flexible enough to meet your changing needs. For example, a processor that accepts foreign currencies will be great if you expand internationally.
Bottom Line
The proper high-risk merchant account will not only allow you to manage your risk more effectively and securely, but it will also allow you to grow your business with fewer headaches and unfavorable terms.
