If you are a high-risk merchant, it is important to know the merchant account service best suited for you. Knowing the right high-risk merchant services provider will have a positive effect on your business when accepting high-risk card payments.
Against popular opinion, not every merchant account provider is capable of properly handling high-risk business transactions and particularly, high-risk card payments.
Some credit card processors and merchant service providers might be willing to accept the liability that your unstable business poses, but do not have the capacity to deal with the challenges when they come. Once they start seeing way more than what they bargained for, they abandon you to your devices.
This is why you, as a business owner, should fully understand the gravity of the risk that your market space poses. Instead of doing business with the first payment processing company that comes your way, take your time and do the research when accepting high-risk card payments.
It is no surprise that many merchants have no idea that they belong to the high-risk business category. Below are the major reasons why you are a high-risk merchant and not a low-risk merchant.
7 Reasons Why a Merchant is Classified as High Risk
- The industry you operate is known for high cases of fraud, identity theft, and high chargeback ratios
- The business sells services or products on a recurrent business model
- The industry is heavily controlled or regulated by state or federal laws
- The business is online and accepts electronic payment also known as card-not-present transactions
- You have a bad line of credit and/or credit score
- Payment for products or services are made in multiple currencies or you accept payments well in advance
- Your business has zero or little credit card processing history
Why High-Risk Merchants Need the Right High-Risk Merchant Services Account
The main reason you need to open a merchant account with the appropriate high-risk merchant services provider is to avoid the chances of your account being frozen and your funds being held.
When an acquiring bank clamps down on your account, it grinds your business to a halt and stops cash from flowing in or out. This is an unwelcome development that can remain unresolved for months.
All high-risk merchants that partner with the right merchant company reduces the risk of having their merchant accounts closed.
The due diligence or underwriting process on a high-risk merchant account does not end once an account is opened. It is an ongoing procedure and prevalent with all high-risk credit card processing companies.
So, when an account is opened under dodgy circumstances or the right documentation is not available the application can run into complications.
Time and money are not the only prices you pay when you start from scratch. Additionally, by the time you open another account, most of your customers would have moved on. And your competition would have probably muscled into your business territory.
What are High-Risk Merchant Services and High-Risk Card Payments?
A high-risk merchant account is a bank account that is best for businesses operating in unstable and higher-risk industries.
There can be slightly different requirements when opening this type of account, but a final decision depends on a full assessment of the potential risks involved.
Payment processors use a different set of resources for high-risk merchant accounts in comparison to low-risk accounts. This needs to be done to categorize accounts properly.
Industries that Fall into the High-Risk Merchant Services Category
- Airlines and booking
- Bad credit loans
- Auto warranties
- Legal services and attorneys
- Credit monitoring companies
- Debt collection agencies
- Business loans
- Adult services- sex toys, strip clubs, dating, escort services, porn sites and erotic phone and cam services
- Coins and collections
- Background check services
- Government grants
- Dating apps and services
- Health and beauty
- Sexual wellness products like male enhancement pills
- Credit repair services
- Subscription billing- continuity billing common with magazine subscriptions, software sales, and other forms of recurrent payment
- Cryptocurrencies and foreign exchange trading
- CBD and hemp-related products
- Travel and hospitality
- Firearms, ammunition, and gun accessories
- Mail-order products or businesses
- Online gaming
- Fantasy sports- soccer, football, basketball, baseball, online gambling, and more
- High ticket coaching-group consultation, conventions, workshops, and public speaking
- Antique shops
- Real estate
- Subscription boxes
- Vape and E-cigarettes
- Hair and skincare
- Digital marketing
- SEO agencies
- Online medication providers, drug stores, and pharmaceuticals
This is by no means an exhaustible list. Different factors determine if a merchant is a high risk or not. Even problems like poor business practices can put a merchant in the bad books of a payment processing company and high-risk merchant services provider.
Applying for a High-Risk Merchant Account
Applying for a high-risk merchant account usually starts with filling out a form, pre-application, or questionnaire on the website of a merchant account company.
After this is done, an agent gets in touch either by phone or email to walk you through the application process. The application process also entails the collection and organization of vital documents for a bank to review.
A merchant service provider acts as a middleman between the merchant and the acquiring bank. It is the merchant account company that applies to financial institutions on your behalf.
High-Risk Merchant Account Fees
With a high-risk merchant account, the credit card processing rates and fees that you are expected to pay are typically higher than a low-risk account. Depending on the volume of sales, processing fees can range from 3%-6% alongside a transaction fee of $0.30 or more per sale.
Merchants should also take note of the rolling reserve usually associated with high-risk accounts. It is put in place to minimize the chargeback risks of operating this type of merchant account.
The exact amount is often at the discretion of the acquiring bank, but it usually covers 5%-10% of all transactions.
The Easiest Way to Lower Your Fees
One of the easiest ways to lower fees is to prove that you have a healthy processing payment history.
When you do this, you show that your business poses minimal risk. A reduction in fees is always a possibility with banks if the conditions are right because they want to do business long term.
Another way to reduce high-risk merchant account fees depends on how long you have been in business.
If you have been around for many years, acquiring banks see your business as a safe bet, even in a high-risk industry.
Get in touch with a representative to confirm the possibility of lowering your fees because of high sales volume or an impressive history of low-risk activity.
Are High-Risk Accounts Approved Instantly?
As much as approvals might vary based on the type of industry and the requirements from individual banks, it is rare for merchant accounts to be instantly approved.
As a high-stakes industry, things cannot be rushed. This is the reason why banks prefer to take each application on a case-by-case basis.
The standard time of approval is usually 3-5 days and can be longer. These acquiring banks need time to look at documents and process applications.
It is not out of place for high-risk merchants to have issues with an application process. Banks looking at your data and analytics over a period of time use it to reach a conclusion of what they can expect from your business.
So, when you launch a new website, change your payment gateway or add a new product during your application process, you complicate things for these institutions.
Always avoid making any wholesale changes to your business when your application is in the pipeline.
Make sure you go through all the information that you provide with a fine-tooth comb. Do not use a postal box instead of a physical address. Besides jeopardizing the chances of any correspondence reaching you promptly, banks are also known to show up for site inspections.
Every piece of information provided should always be direct and to the point to avoid delays with your application.
Should you need assistance completing your application or have any questions pertaining to the application itself, please contact our support team at 800-419-1772