High Risk Merchant Accounts
Are you a ‘High Risk’ merchant?
Most businesses nowadays need to be able to accept card payments, whether you’re an online business or bricks and mortar. Finding a good and reliable merchant account provider to process those card transactions is still proving to be a challenge for any business, but it can be even harder if you’re classed as a “high risk merchant”
What is a High Risk Merchant Account?
A high-risk merchant account is a specialized financial arrangement designed to accommodate businesses that operate in industries or have characteristics that are deemed riskier from a financial standpoint. These accounts cater to businesses that face higher probabilities of chargebacks, legal issues, or other challenges that could impact their financial stability.
High-risk merchant accounts are typically required by businesses in sectors like online gambling, adult entertainment, travel services, pharmaceuticals, subscription services, and certain types of e-commerce. Additionally, businesses with higher chargeback rates, such as subscription services or tech support companies, might also fall into the high-risk category.
Key features of high-risk merchant accounts include:
1. Stringent Underwriting: To manage the inherent risks, acquiring banks or financial institutions impose stricter eligibility criteria and underwriting processes on businesses seeking high-risk merchant accounts.
2. Higher Fees: High-risk accounts often come with higher processing fees, reserves, and transaction charges. This compensates for the increased financial risk and potential losses.
3. Rolling Reserves: Financial institutions might require businesses to maintain a rolling reserve, which is a portion of funds that are held in the account as a security buffer against chargebacks and potential losses.
4. Shorter Settlement Periods: Businesses with high-risk merchant accounts might experience longer settlement periods, meaning that funds from transactions take longer to become available.
5. Specialized Payment Processors: High-risk businesses often need to partner with payment processors or banks that specialize in working with these industries. These specialized providers have the expertise to manage the unique challenges associated with high-risk transactions.
6. Chargeback Management: Businesses in high-risk sectors usually experience higher chargeback rates due to various reasons. Therefore, effective chargeback management solutions are essential to mitigate losses and maintain account stability.
7. Regulatory Compliance: Many high-risk industries are subject to stringent regulations. Businesses in these sectors must ensure they adhere to all legal requirements to avoid potential legal issues and account closures.
In conclusion, a high-risk merchant account caters to businesses operating in riskier industries or having specific characteristics that make their financial operations more challenging. These accounts are tailored to address the unique needs and risks of these businesses while providing them with the opportunity to process payments and operate despite the elevated financial uncertainties they might encounter.
Industries often considered to be ‘high-risk’ include, amongst others:
- tobacco and electronic cigarettes
- Cryptocurrencies and ICO’s
- drugs and drug products (including prescriptions)
- nutraceuticals
- airline, travel, tourism and lodging
- debt management and collection agencies
- PPI claims management companies
- payday loans
- gambling
- Cannabis seeds
- CBD Oil
- foreign exchange (Forex)
- e-wallets
- pyramid selling
- dating and escort services
- adult entertainment
- timeshares and holiday clubs
- tech support
- money-making products and services
- charities
- monthly memberships and subscription services
- insurance
- jewellery
- software
- advertising services
- online auctions
- events and tickets
- penny auctions
- file sharing
- VPN
- affiliate marketing
If your classed as ‘High Risk’,quite frankly, it makes getting a merchant account a lot harder and more expensive. Despite the intense competition within the merchant services industry, getting approved for a merchant account is never guaranteed. Providers have to balance the risk presented by a merchant applying for an account against the potential profit to be made from the account if it is approved. In most cases, they err on the conservative side of things, meaning high-risk merchants simply aren’t approved for an account.
Other providers will approve you, but you won’t get nearly as good a deal as a non-high-risk merchant (lower risk) would receive. Instead, you’ll pay higher processing rates (up to 15% per transaction) and account fees, and you’ll usually be stuck with a long-term contract (typically 3 years), an early termination fee, extended settlement period and high monthly fees. In some cases, you might also be required to put up a rolling reserve to get approved
If a merchant is considered high risk, they will have a more difficult time obtaining a merchant account, but We Tranxact Ltd has the experience and the relationships in place to assist you!
