A merchant account is needed for businesses to accept and process card payments. However, businesses that are deemed high risk are not allowed to open traditional merchant accounts. High-Risk merchant account providers specialize in the approval of higher risk business types and high risk category merchants.
High risk industries require a different approach when it comes to a credit card processor as they are exposed to a higher degree of risk.
The only way forward for these types of businesses is to deal with experienced and knowledgeable high risk merchant account providers.
High-risk merchant account providers understand the volatile territory certain businesses operate in.
Seasoned high-risk credit card processing specialists tend to have well over 20 years of experience in the merchant acquisition industry. They know exactly what it takes to get these accounts approved.
Working with a qualified high-risk merchant account provider will not only save you time, but money as well. Make sure you choose wisely!
What Makes a Business High Risk?
Ongoing refunds, high chargeback ratios and potential fraud cases are common reasons why most financial institutions choose not to work with high-risk merchants.
Unlike low-risk merchants, high risk-business owners often struggle to open merchant accounts for payment processing. Below are other reasons why a business might be considered high risk.
- Terminated merchant account (TMF)
- Bad credit history
- Poor credit score
- Businesses located in high-risk countries e.g. Belize, Cyprus, Andorra, the Cayman Islands, Malta and the British Virgin Islands.
- New start-up businesses have little or zero experience in processing card transactions.
- Deals with high ticket products or services
- Operates a multiple currency business
Examples of Higher Risk Businesses Types
- Medical care programs
- Tour operators and travel services
- Real estate
- Online auctions
- Casinos, gaming and gambling services
- Forex and cryptocurrencies
- Money transfer and transaction services
- Health, wellness and vitality products
- Airlines and airline charters
- Dating services
- Adult entertainment
- Escort services
- Tobacco, alcohol and electronic cigarettes
- Payday loans and debt collection agencies
- Drug prescriptions and products
- Nonprofits and charities
- Ticketing and Event Services
- Pyramid sales and timeshares
- Advertising services
- Affiliate marketing
- Monthly memberships and subscription services
- Fantasy sports
- Pawn shops
Applying for High Risk Merchant Accounts
Before reaching out to high-risk merchant account providers to assist with opening an account, make sure you have met the following requirements:
- Business plan and administrative outline
- Incorporation documents and shareholder certificates
- Business license if needed
- Operative websites are a must
- Legal Identification/Passport and utility bills of local directors and shareholders
- Financial and bank records
- Ensure that you and your business have no outstanding legal cases
Upon submitting the application, high risk merchant account providers review the information based on specific guidelines like business type, monthly volume, chargeback ratios, etc. Once pre-vetted, they can determine whether or not a high risk merchant account is right for your business.
High Risk Merchant Account Fees
Due to the stakes involved, high risk merchants will initially pay higher fees than low risk merchants.
This is why it is always best to read the contractual agreement if you do not fully understand what you will be paying. Make sure you ask plenty of questions and are crystal clear on the terms and conditions before signing dotted lines.
Common fees that high-risk merchant account providers attract include:
High risk merchant processors often charge setup fees to open high-risk merchant accounts and integrate them into your website online.
High-risk merchant types often pay monthly and yearly fees to keep their accounts active. Fees are dependent on the industry and the account provider offering the service.
PCI Compliance Fee
High-risk account providers also charge a PCI compliance service fee. This fee is also known as the PCI DSS Compliance Fee. This is a compulsory cost by the Payment Card Industry Data Security Standards Counsel. The aim is to make sure merchants handle sensitive data properly and responsibly.
Early Termination Fee
This is compensation meted out to a high-risk merchant provider for expenses accrued for opening and closing the merchant account.
These fees tend to be charged when merchants open an account and decide not to use it.
There is oftentimes a lot of work that goes into opening a higher risk merchant account and providers will access this situation closely.
The signing of a contract always includes how long you have agreed to work with the specific processor.
If you decide to end the contract prematurely, you may pay an early termination fee.
When a cardholder files a payment dispute and the acquiring bank makes a favorable decision on behalf of the customer, a chargeback is processed.
This is unfortunate because merchants often lose 2 or 3 times more than what the transaction is worth.
These costs include fixed fees for retrievals and requests, transaction fees, other operational costs as well as marketing and acquisition costs.
A rolling reserve withholds a small percentage of a merchant’s total funds for a certain amount of time (usually 6 months) before it is eventually released.
This is done because chargebacks are inevitable. It is a method acquiring banks use to minimize risks of losing money, especially when dealing with higher risk business types.
Finding the Right High Risk Merchant Account Provider
Finding the right merchant payment processor for your high-risk business can be challenging, especially if you are on a budget and do not want to spend too much on fees.
Here are 3 ways to secure the right merchant account for your high risk business.
Tip #1: Research, Research and MORE Research
When scouting for a merchant account service provider, choose one that has a great track record of working with high-risk clients in your industry.
It is always best to pick up the phone, make a call and have a conversation with someone. If you feel comfortable, keep talking. If not, move onto the next one.
Stay away from payment processors that inflate their fees for no reason.
Your payment processing provider of choice should have an operational website and be ready to give out pricing quotes when you ask for them.
Tip #2: Verbal Conversation with Merchant Account Provider
Have an open and honest conversation with your high-risk merchant account provider of interest. Be transparent about your business from the beginning.
A reputable merchant service provider will do their best to help you when you provide relevant information. Withholding information is never a good idea.
Examples of documents that can help a merchant service provider make the right decisions include financial statements, bank statements, credit history and payment processing history.
Tip #3: Checking all the Boxes
When choosing a merchant account processor, make sure the company checks all the boxes related to processing your payments.
If a high-risk payment processor does not fulfill all of your obligations, it might mean you need to look further.
Features of an ideal high-risk merchant account provider include: (POS) point-of-sale systems, virtual terminals, mobile payment solutions, credit card terminals, payment gateways with shopping carts, website integrations and great customer support.
All these features do not necessarily need to be present for your basic approval. As long as they are available and reasonably priced, you can add them as needed.
Every startup and established enterprise in the high risk space needs an effective way of accepting and processing payments.
There are many high risk merchant account providers that offer this service, but it is vital to find the one that best suits your business.
Do your research and talk to representatives of the companies you are interested in.
It is important to see what is being offered before agreeing to anything.
When you eventually make a decision on a high risk merchant account provider, be sure to review your contract thoroughly before signing on the dotted lines.