What is a Merchant Account for a High-Risk Business?

Any merchant seeking to do business via the internet must have an e-merchant account. A merchant account for a high-risk business via the internet is what providers like SecureGlobalPay specialize in. In general, online payment solutions providers supply the infrastructure, knowledge and expertise that allow a merchant to do business safely and efficiently online. Whether you are considered a higher-risk business, or not, SecureGlobalPay has the solutions in place to get your business accepting payments quickly and efficiently. 

But a desire to do business accepting credit cards over the internet does not automatically entitle a merchant to do so. Just as banks and mortgage brokers evaluate the histories of potential partners and clients, so do credit card processors. Like any business, these providers seek to minimize risk to themselves when partnering with other organizations they consider a higher-risk business.

During the evaluation phase, it may be that your business is designated “high-risk” by your payment processor and acquiring bank. This involves additional challenges to any merchant. You need a provider that has experience with providing merchant accounts for a high-risk businesses.

In this essay, we will examine high-risk merchants. We will study the characteristics that cause a business to be designated as higher risk. We will attempt to understand the challenges this designation poses for your higher-risk business. And we will offer advice on how to prepare for your evaluation and cope effectively with a high-risk designation.

What makes a Business High-Risk?

A business can be labeled high-risk for many reasons. These include but are not limited to the following factors.

• A bad credit score or history of terminated merchant account(s)
• A high monthly sales volume (>$20,000)
• A history of chargebacks
• Operating from or in nations considered to be high-risk markets
• Operating as part of an industry generally viewed as high-risk

Nations such as the USA, UK, Canada, Germany and other members of the EU are generally viewed as acceptable/low risk. They are recognized for stable banking practices and low levels of fraud. But this is not true of all nations. Countries in Africa, for example, or SouthEast Asia are known safe havens for fraudsters and fraudulent business practices. Consult with your bank for a list of known high-risk countries.

Certain businesses and industries are traditionally considered high-risk. This can be due to a number of factors. Some include a history of high chargeback ratios, tendency to attract “friendly fraud” or simply the nature of the business itself. Some businesses that are considered high-risk generally operate in risky markets. Some are listed below.

• Adult entertainment, dating and escort services
• Online pharmaceutical and drug providers 
• Bail bond services
• Online gambling and casino services
• 1-800 chat services
• Pawn shops
• Gun stores
• Vitamin, diet and exercise services

If you or your business operates in any of these industries, then you may be required to obtain a high-risk e-merchant account. The same is true if you operate from a country known to have a high level of fraud activity. 

During the evaluation, the merchant service provider will make an “either/or” evaluation. You will be adjudged as either an acceptable or unacceptable risk. Evaluation methods and criteria will vary from provider to provider.

The Burdens of a High-Risk Account

Although a high-risk account can be an inconvenience, it still allows you to do business over the internet via an API and virtual terminal. Unfortunately, the high-risk designation means that certain additional burdens and/or restrictions may be placed on your account.

Monthly volume processing cap. Some merchant service providers will limit your ability to accept payments. They put limits on the volume of sales in monthly credit card transactions a high-risk merchant can process. Once you achieve your maximum number of transactions for the month, you will no longer be able to process credit card transactions until the following month. Provided you keep your chargeback ratio low, you can usually appeal a monthly processing cap within 3 months. You can also diversify and apply for multiple merchant accounts and intelligently route these transactions to multiple processors through one secure payment gateway.

Higher service fees. The simple truth is that high-risk merchants potentially pose a greater liability to banks payment solution providers. Organizations will off-set this risk by imposing higher service fees on high-risk client accounts. Fortunately, most providers furnish their clients with a path toward “low risk” status. Study your provider’s guidelines and procedures for ways to beat the label.

Rolling reserve. A rolling reserve is a fee calculated by your bank or service provider. It is used to cover the cost of excessive chargebacks or unexpected activities such as fraud. The amount of the reserve will vary based on the bank or provider. Typically, a rolling reserve is established and held for a fixed period of time before being released (usually about 6 months).

Chargeback fees. These are standard transaction fees imposed by providers to cover the administrative cost of processing a chargeback on a credit card transaction. A chargeback occurs when a customer files a dispute about a credit card transaction and asks the bank to intervene. Chargeback fees apply to both high- and low-risk merchants but are particularly applicable to the former. Ensuring your company contact info is included in all correspondence and providing solid customer service can lessen the likelihood of chargebacks.

Applying for a High-Risk Merchant Account

The application process for a merchant account is more or less standardized across the industry. Whether you are applying for a low- or high-risk merchant account, the process is the same. You will be required to furnish auditors with certain information about yourself and your business. Auditors and risk assessment professionals will consider all of this when evaluating your application.

At SecureGlobalPay, we specialize in working with high-risk merchants. Our payment gateway solution and chargeback prevention specialists are ready to work with you. We are eager to understand, assess and support your higher-risk business as you prepare to launch your business and go live with internet payment processing.

Prior to your meeting, ensure you have the following ready.

1. All outstanding bills and debts paid/in process of payment
2. A potential cash reserve
3. A functioning website with URL
4. No outstanding legal actions against you or your company
5. A business plan and organizational outline/chart
6. Your last six months of transaction processing history
7. Bank and finance records

At SecureGlobalPay, we understand the needs of your higher-risk business and are experts in high-risk credit card processing. We are aware of the challenges modern businesses face and are eager to help. We are prepared to work cooperatively with you to provide an online payment services solution custom-tailored to your needs. Apply now to begin your journey toward online payment processing.