When searching for payment processing solutions, you will come across two main kinds of merchant accounts – low- and high-risk. Learning that your business is high-risk might have you worrying about what to do next. However, don’t panic before knowing how high-risk merchant accounts work and their pros and cons. Merchant accounts for high-risk ventures are more common than you would imagine. This guide explains why your enterprise might have this classification and how to full advantage of reliable merchant account services.
What is a High-Risk Merchant Account?
Some businesses require high-risk merchant accounts to accept credit cards and other transactions in payment processing. This type of account is tailored for merchants with a significant risk of fraud and chargebacks. E-commerce ventures that accept credit and debit cards are some businesses considered high-risk. Financial institutions and payment processors charge higher fees to merchants with a history or threat of chargebacks and refunds. Such enterprises require rolling reserves and full underwriting, hence the need for special accounts.
In comparison, low-risk merchant accounts cater to clients with zero to low chargeback ratio. Processors also designate a merchant as low-risk if operations are in an economically-favorable region. Minimized returns and average credit card transactions of less than $500 reduce a merchant’s risk. When buying POS systems and comparing merchant accounts, know if your business falls in the high- or low-risk category.
When is Your Business Considered a High Risk?
Several factors determine whether a merchant is a high risk for credit and debit card payments. The payment processing sector doesn’t have a definitive formula for this determination. As mentioned, the chargeback ratio is a primary factor. The more chargebacks your operation generates, the greater your risk. Payment processors recommend keeping maintaining a chargeback ratio of lower than 0.9%. Where you conduct business matters, as well. Companies with international operations are viewed as high-risk because laws regarding payment transactions vary across countries and territories. A large volume of transactions is another indicator of a risky merchant for processing companies. Some industries are also labeled as high-risk. These include travel agencies, online gambling, health and wellness products, cigarettes and tobacco, computer software, and dating services.
Benefits of high-risk business accounts
Despite their negative connotations, high-risk merchant accounts offer several advantages. Here are the main reasons to consider a high-risk account when searching for suitable merchant account services.
More payment options
High-risk merchant accounts don’t restrict the transactions you can receive via credit cards. For example, a subscription service can support recurring payments. Regular performances limit the type of payments your business accepts. A more comprehensive selection of card transactions simplifies payments for you and your customers. You can also attract more business with different payment alternatives.
Accepting worldwide payments
You can sell internationally without problems when running transactions through a high-risk account. This account allows you to accept multiple currencies, thus, enabling buyers in different countries to pay for goods and services. A regular merchant account might only let you receive payments in selected regions. The ability to operate worldwide promotes growth.
Higher month-to-month profit
A merchant account for a high-risk business increases revenue. With this type of account, you can set up recurring payments, making upselling easy. It also allows you to accept large transaction volumes, thereby boosting profits. In addition, payment processors guarantee secure payment solutions, which help build a merchant’s reputation. The more customers trust you, the more they buy. Additionally, the account opens more business opportunities because you can sell most items.
Drawbacks of high-risk business accounts
Whether you are getting an online dating or Bitcoin merchant account, know the downsides of the payment processing solution. You should be ready for the costs or other implications of using a high-risk account. Here are the primary disadvantages.
A high-risk merchant can pay as much as twice the fees as a low-risk merchant. Merchant services don’t offer standard prices, though. Each one evaluates businesses individually to determine the rates. The high fees cover the high risk of processing payments for a particular merchant. Processors also include chargeback fees for customers who dispute charges and ask for chargebacks. The expenses add up with other costs, such as POS systems.
Longer application process
The application for a high-risk merchant account can take several days to be approved, whereas a regular version can be ready in minutes. This is because merchant services are thorough when verifying high-risk businesses. You have to provide a lot of documentation, including processing history. For example, some banks might ask for a year’s-long history to check your chargeback ratio. Funds for high-risk merchant accounts also take a long time to clear.
Realizing card processing companies term your business as high-end can be frustrating. However, it doesn’t mean you won’t be able to process transactions. High-risk merchant accounts are designed specifically for businesses like yours. You can find processors and payment service providers willing to take on the risks your operations come with. Although it comes with additional costs, a high-risk account lets you accept other payments globally.