When it comes to providing merchant accounts for businesses to accept credit cards, not all of them are treated equally by payment processors. While some of these businesses can operate low-risk merchant accounts, others require very high-risk merchant accounts.
These high-risk businesses tend to initially pay more in fees and are more vulnerable to chargebacks and fraud. They also attract strict application requirements before any of the high-risk merchant account services are available to them.
Moreover, after these higher-risk businesses types have been given very high-risk merchant accounts, they are still subject to close scrutiny to ensure they are not breaching any rules or causing any concerns for payment networks or acquiring banks.
Providers offering very high-risk merchant account services for hard-to-place businesses also provide opportunities for merchants to help sustain their businesses by managing their risks and payment processing through a robust secure payment gateway.
But why are these businesses classified as high risk? Secondly, why do a majority of banks refrain from providing very high-risk merchant account services to these businesses?
The Major Reason Why Businesses Need Very High-Risk Merchant Accounts
Businesses that need very high-risk merchant accounts are likely to offer a bigger financial threat to acquiring banks and high-risk credit card payment processors.
Here are examples of businesses that need very high-risk merchant accounts:
- Affiliate marketing
- Escort and dating services
- Debt management
- Credit repair
- Pharmaceuticals (prescriptions inclusive)
- Collection agencies and debt collectors
- Advertising services
- Ticketing and events
- Cruise lines
- Timeshares and holiday clubs
- Car parts and vehicle sales
- Investment schemes
- File sharing
- Tour companies
- Ppi merchant account services
- CBD oil
- Airline ticket sellers
- Tattoo parlors
- Bars and nightclubs
- Online auction merchant processing
- Travel agencies
- Pyramid sales and direct sales
- Online gaming merchant high-risk
- Software downloads
- Online travel reservation websites
- Hosting and ISP services
- Web development and technical support
- Payday loans
- Fantasy sports
- Adult entertainment
- Health and wellness products
- Money transfer
- Prepaid phone cards
- E-cigarettes and high-risk tobacco payment processing
- Networking and multi-level marketing
Other Reasons Why Businesses Need Very High-Risk Merchant Accounts
It is not only the products or services that you offer that categorize your business as high risk. There are several other factors that raise concerns and increase risk when dealing with acquirers.
Other reasons why businesses may require very high-risk merchant accounts include:
- New business with no card processing history
- High ticket transactions (more than $500)
- Excessive chargeback ratios
- Poor credit scores
- Too many fraudulent cases
- Little or no regulatory standards from government or relevant agencies
- Recurrent and continuity billing models (subscriptions)
- The business accepts payments in more than one currency
- Transaction of business in high-risk countries (particularly countries outside North America, Europe, and portions of Asia)
New businesses, startups, and low-risk businesses with poor credit scores or looking to build their credit card history may also fall under this category.
These businesses stand a chance of resolving their issues if they can improve their credit score or credit card processing history.
When a business has bad credit, it may require the services of a credit repair company to steady the ship and lower chargeback ratios. In the case that this happens, these types of businesses do not need to use very high-risk merchant accounts in the long term.
On the other hand, businesses like firearms, adult entertainment, fantasy sports, and debt collection agencies have no choice but to use very high-risk merchant accounts to accept and process payments because they will always pose a financial and reputational risk to financial institutions.
These businesses will always be at high risk because of their susceptibility to high chargeback ratios, fraud, legal issues, and other controversies or hassles traditional financial institutions want to avoid.
Very High-Risk Merchant Accounts Fees
A high-risk merchant pays higher fees than a low-risk merchant because a high-risk business carries more risk.
Several years ago, these fees were astronomically high and this made it difficult for a considerable number of high-risk merchants to do business.
Today, the landscape has changed significantly. You still get to pay high fees with flat-rate processors, but cheaper alternatives reside in three-tier and interchange processors.
The majority of acquiring banks request that businesses pay money into a reserve after getting their high-risk merchant accounts to cover chargebacks from customers. If you properly negotiate how much should go into your rolling reserves, they will not eat too much into your profits.
Some processors place a monthly volume limit on very high-risk merchant accounts to stop you from receiving any payments when you reach the maximum threshold. One way to get ahead of this problem is to have more than one very high-risk merchant account for your business or get an offshore merchant account.
Due to the risks involved in operating a very high-risk merchant account, putting anti-fraud measures in place is mandatory. Services like AVS, 3D Secure, and CVV are compulsory parameters for very high-risk merchants with an online presence. The majority of high-risk payment providers factor in these security costs when setting up your very high-risk business online.
Overdue Payment Settlement
Payment processors also make delayed payment settlement demands in order to curb fraud. It means that as a high-risk merchant, you may not get your money on time. Fortunately, you can negotiate for a shorter payment settlement if you have a low chargeback ratio and enjoy steady sales.
Why You Should Stick to Very High-Risk Merchant Account Providers
Rather than offer a one-account-is-good-for-all approach, very high-risk merchant account providers understand the instability in high-risk industries and offer niche-specific solutions. All very high-risk merchant accounts are peculiar, and the features of a nutraceutical high-risk merchant account are not the same as the features of a firearms high-risk merchant account.
Very high-risk merchant account providers have the wherewithal to talk to acquirers and credit card processing companies on your behalf and get the best deal in fees, rolling reserves, and other worries your high-risk business may attract.
They also offer chargeback prevention and fraud protection services to help you develop good policies to meet your customer expectations in order to drive down refund requests and chargeback ratios.
Friendly fraud is at an all-time high with 8 out of every 10 merchants seeing it as an obstacle to their businesses. It is imperative to always be upfront with your customers and make them fully understand what they are paying for and how it will appear in their bank statements.
Third-party providers like PayPal, Square, and Stripe do not offer very high-risk merchant account services.
They might allow you to open your account, but as soon as they get wind of your high-risk activities, they will shut down your account and freeze your funds.
3rd Party Providers Great for Low-Risk Startups
Thirty-party providers do not offer very high-risk merchant account services, but they are great for new businesses and low-risk startups.
Opening a PayPal, Stripe, or Square account requires little paperwork. You can get your business up and running in a matter of minutes and they can help you build vital credit processing history.
This is crucial if you choose to get a merchant account because providers want to see your processing and credit history when you apply for an account.
One drawback with using 3rd party providers is that you cannot do high sales volumes. A monthly volume cap surpassing the $50,000 mark could get your account flagged or terminated.
Try not to apply to too many 3rd party providers, two is enough. Get started with a PayPal account and use it as your sales trickle in, but as your business grows, add a Stripe account and use it as a complementary payment gateway for your increased sales volume.
Very High-Risk Merchant Account Application Approval Industry Tips
Here are 5 tips for a successful high-risk merchant account approval. These tips work well with all high-risk industries.
By the time you decide on an ideal high-risk payment provider, you should receive a tailored guide that will accelerate your application filing and highlight the strengths of your business in a bid to get a very high-risk merchant account.
How Well Do You Know Your Industry?
How well do you know your industry in relation to high-risk merchant account processing? If you have a good grasp of your high-risk business puts you in a good position to convince a payment provider that you understand the possible risks your business poses.
If you are looking to open a very high-risk adult entertainment merchant account, you need to be in the loop and know the current standing of card networks, banks, and payment processors within the adult entertainment industry.
For instance, during the OnlyFans payment mess, what exactly happened between the London-based subscription service and its payment processor?
If you plan on running a webcam service, you must be able to prove to a very high-risk merchant account provider that the cardholder’s information is safe on your site and show that there is an agreement between you and the models to create content.
Having adequate information about your industry helps you facilitate very high-risk merchant account approvals.
Tell It As It Is
Being evasive about your business will not brighten your chances of very high-risk merchant account approval. The underwriting team that is looking at your application wants you to be upfront about what you sell and if there have been previous merchant account issues.
If you are economical with the truth because you are desperate to get very high-risk merchant card processing, it will come back to haunt you. These teams are thorough and will eventually see right through to your deception and decline your application.
The status of your credit history plays a huge role in increasing your approval prospects. To ensure that your very high-risk merchant account application scales through, be honest about your credit score and credit history.
This is not something that you can hide because this information can easily be sourced from banks and credit card processors. If you have bad credit or poor processing history, speak to a very high-risk merchant account provider before you submit an application.
Be a Student of Financial Trends
High processing volumes make banks uncomfortable and are another reason why they do not offer services for very high-risk merchant accounts.
Is it really hard to comprehend why banks turn away from high processing volumes when it means more money for them? The easy answer is that higher volume attracts fraud and because this increases the risk of banks losing money, they are not keen to work with very high-risk merchant accounts above their threshold volume.
This is why it is imperative that you become a student of past and future financial trends. If you can provide realistic estimates about your business and prepare a payment provider about what your business makes beforehand, it puts you in good stead to get approved.
Be Open to Terms
Even when the terms of the agreement are not exactly in your favor, do not lose hope because there is plenty of room to negotiate even after contractual papers have been signed.
While you initially partner with providers that offer high-risk services for merchant accounts, your business may be subjected to high fees because of the risk level involved.
However, as things progress and you establish your business as a reliable one with consistent sales and a low chargeback ratio, those rates can be revisited.
High-risk account owners should be willing to pay relatively high fees in order to get approvals for their very high-risk merchant accounts.
This might not sound appealing, but these might be the lowest possible rates that you can find. After getting several months of processing history under your belt with no issues, you can ask for lower rates.
Compare and Contrast
Very high-risk merchant account providers offer different contractual terms. You should not partner with the first provider that you come across. Research, investigate and weigh your options.
Compare setup fees, early termination fees, transaction fees, chargeback fees, discount rates, reserve fees, monthly minimums, refund fees, and even the equipment they offer you along with a very high-risk merchant account.
Where are a majority of your customers coming from—if they are located in England, France, Germany, or Italy, then you should be looking at a very high-risk merchant account that allows you to accept and process euro payments.
Does your business require mobile terminals or point-of-sale systems? Do you require a payment processor that can provide a virtual terminal, shopping cart, customer tracking, and ACH processing for your eCommerce business? Does your operation require ongoing customer service and 24/7 customer support?
Compare and contrast all options before finally deciding which very high-risk merchant account provider is best suited to your business goals and objectives.