DETROIT – Many people have the question “what is high-risk merchant account?” High-risk merchant accounts are the accounts that pose a higher risk of chargebacks. It’s not related to the performance and the nature of business. With the ongoing situation caused by the COVID Outbreak, majorly the industries, including Travel (Airline, Cruise, and Holiday Planner), Gambling, Furniture, Real Estate, and many more, are considered to be High-Risk Merchant Accounts.
When it comes to the payment service provider, they are more specific with the nature of the business they are willing to approve. However, you will be required to apply to the payment service provider with all the prerequisites for your business. If you are wondering what a high-risk merchant account is, read more about it.
Who is it for?
Though the company will decide on each application based on internal criteria. There are many reasons for the accounts of the merchants to be high risks mentioned below:-
- You are new to the market, and your products are unfamiliar to the consumer.
- You pose a more significant threat to the banks with your accounting history.
- Your industry is too high risk, e.g., e-cigarette, travel, e-commerce, Dating, Furniture, Interior, Real Estate, the adult industry, and many more.
- Time Duration for your business in the market.
- Chargebacks: Try to negotiate for refunds and provide vouchers to your consumers rather than paying the number of chargebacks.
Well, these are some of the reasons for the business to identify as high risk. Their accounts may also be subject to a rolling reserve, where the payment processor holds a certain percentage of your income to ensure your transactions were not fraudulent or at risk of chargeback.
E.g., If a merchant processes over $20,000 in monthly payments or has an average transaction of $500 or more, they may be classified as high-risk.
Mainly high-risk merchant accounts are required to maintain the rolling reserve, which is an additional layer of protection for the banks or your payment service provider against your chargebacks or fraudulent activities. So a certain amount of processed volume (5-10%) is secured. It majorly depends on the model and duration of business.
How To Use A High-risk Merchant Account?
You must fill out an application online to use the high-risk merchant accounts. Though the process is straightforward and short for applying for high-risk merchant accounts, you need certain documents before applying for high-risk merchant accounts.
- Incorporation certificate
- Transaction processing history for the last six months
- Shareholders and shareholder’s certificates of other firms in case of being a shareholder.
- Organizational structure graph.
- Copy your passport and utility bill of local directors and shareholders holding more than 15%.
High-risk merchants must maintain many obligations, including high processing fees and chargebacks—long-term growth opportunities with increased profit for your business.
Your payment service provider allows for the acceptance of multiple currencies. It provides higher chargeback protection against your account and offers global coverage for your account for the long term.
Checkpoints To Know About Your Account For High Risk
With the increase in technology globally, the number of payment service providers has been increasing daily. Make sure to check these points while selecting your payment service provider:-
- To discuss features, rates, and conditions, make sure your payment provider offers tailor-made solutions for your business and flexibility for your complex business model.
- You will require timely support for your business in case of failed transactions on your website for payment.
- As pricing structures are readily available online, make sure there are no hidden costs, and it has to be transparent.
- Payment Platforms APIs need to be checked before finalizing the gateway so that you can fully access the setup and payment process. In non-specialists’ terms, the provider’s technology must check without downtime or lag issues.
- Always check the security indicators of your payment partner. They offer you a decent chargeback system and a multilayers approach to security.
- Check the reliability before choosing your payment partner—there are ethics and knowledge for your complex business structure.
- Though the agreement and contract are very complex, carefully read and take suggestions from your legal team before signing the contract.
- Thoroughly check the accepted business model before applying for a high-risk merchant account. Always check the processor’s website for the business model and countries they offer their support.
Overall the business needs to be a good fit for the payment processor. If they find your business a good fit, their next step will be opening a merchant account. It does not matter whether your account is high risk or low risk. At high risk, you may have to go through various scrutiny and pay higher processing fees for your business. In the end, what matters is your business.
Although applying to a high-risk account doesn’t imply the request will be approved. High-risk accounts are required to reserve a certain amount of cash initially. You are required to share the previous transaction of your funds for approval. However, high-risk accounts also come with long-term business growth benefits and protection against the high charge.
Though the risk probability is calculated differently for the different providers but does check these mentioned elements before finalizing:-
- Do a checklist of the year of experience they have in your industry before choosing the payment service provider.
- Always be precise and clear about your accounts and accessibility while choosing the provider.
- The effects on the agreement in case of exceeding the chargebacks.
- Evaluating and researching your payment service provider is always better, as many providers work for specific businesses. It is not an easy task to find a payment service provider.
Conclusion
Make sure to be familiar with your industry before approaching a payment processor so it can save your efforts and time. So there are always some benefits to getting a high-risk merchant account, as it allows you to explore the international markets. It also allows you to do transactions in multiple currencies. If you have any issues or doubts, check with the concerned provider.
A high-risk account does limit your transactions initially, but in the long run, it has several benefits, including protection for your chargeback and an increase in your business profit.
This column was provided by Isabella Brooks
