A merchant account is a type of business bank account that allows businesses to accept and process electronic credit and debit card transactions. High risk businesses are types of businesses that come with more chargebacks, refunds, or higher risk of fraud. Entrepreneurs interested in running online high-risk businesses will need to have high-risk merchant accounts.
- 1 What Are High-Risk Merchant Accounts?
- 2 Factors That Make a Business High-Risk
- 3 Examples of High-Risk Businesses
- 4 Merchant Services for High-Risk Businesses
- 5 Things to Consider When Choosing a Payment Processor
- 6 Merchant Account Providers for High-Risk Business
- 7 High risk merchant service providers
- 8 How to Apply for Merchant Accounts for High-Risk Businesses
- 9 Fees for High-Risk Merchant Accounts
- 10 The Benefits of Merchant Accounts for High-Risk Business
- 11 Final Thoughts on Merchant Account for High Risk Business
What Are High-Risk Merchant Accounts?
High-risk merchant accounts are payment processing accounts for businesses classified as high risk to banks. These accounts hold electronic card payments from high-risk business transactions temporarily before the payment is deposited to a business bank account.
Factors That Make a Business High-Risk
Different payment processors and banks may use different guidelines to designate a business as high-risk. However, the following are common characteristics that cause a business to be considered high-risk.
- Bad credit history and/or a history of terminated merchant account(s)
- A high monthly sales volume for the specific branch and type of business, for example a nail salon or a car wash business doing more than $20,000 worth of business a month.
- Poor personal credit
- A history of excessive chargebacks
- A business operating in nations considered to be high-risk markets, or tax havens, this may includes countries like Malta, Cyprus, Andorra, the British Virgin Islands, the Cayman Islands, Belize
- Businesses operating as part of an industry generally viewed as high-risk, such as pornography, gambling and marihuana
Examples of High-Risk Businesses
Industries and businesses prone to excessive chargebacks or refunds need high-risk merchant accounts. Examples of businesses in this category include the following:
- Casinos, gambling or gaming services
- Medical care programs
- Travel services and tour operators
- Money transfer services
- Adult entertainment and dating services
- “How-To”-type websites
- Real estate
- Health and wellness products
- Airlines or airplane charters
Merchant Services for High-Risk Businesses
Merchant services for high-risk businesses refer to a wide range of financial services and processes that high-risk businesses use to accept and process payments. The services include;
- The behind-the-scenes processes that businesses require to accept and process payments.
- The technology involved: This includes the software and hardware businesses use to accept and process payments.
- The companies who provide the services to merchants (merchant service providers). These companies help merchants in setting up accounts, provide tools to accept and process electronic card payments, minimizing chargebacks, detecting fraud, etc.
- Pricing. Merchant services include pricing and how best they work for high-risk businesses
Things to Consider When Choosing a Payment Processor
With the profitability of online high-risk businesses, people are seeking to establish high-risk merchant accounts to run the businesses. Numerous high-risk credit card processors are on the market to satisfy this need. As such, you will need to consider the following things before you choose a reliable payment processor that will help you manage your high-risk merchant account.
- Transparent pricing. Payment partners outline their pricing structures on their websites. It is best to choose a payment partner with a clear payment pattern with no hidden or extra fees.
- Expertise. Ensure that you research on the level of experience of the payment partner before making a decision. If a partner has been on the market for quite some time, there is a possibility that they are knowledgeable and in a better position to offer the best services.
- Presence of security indicators. Every entrepreneur seeks to run a business in a safe environment. Therefore, the payment partner you choose should clearly lay out security measures to ensure your business is protected from fraudsters.
- Reliability. Problems can arise anytime in your business. As such, you will need a payment partner who will always be available and ready to address these problems.
- The presence of an up to date high-risk payment processor website. A legit payment processor will have a well-organized website with updated content. If you come across a website with outdated content, then that is a bad sign.
- Know the accepted business models. It is important to know that credit card processors choose the types of industries to operate in. Conduct a thorough research on the business models that different payment partners support before making a choice.
Merchant Account Providers for High-Risk Business
It is important to know that merchant account providers for high-risk businesses are the companies that provide merchant accounts for high-risk businesses. They are sometimes known as merchant service providers, or credit card processors for high-risk businesses.
High risk merchant service providers
When you work or sign up with a high-risk payment processor, you receive a high-risk merchant account. High-risk merchant accounts are numerous, and you will need to choose one that suits your business needs. However, the following are the best examples.
- SMB Global Payments
- Soar Payments
- Durango Merchant Services
- Host Merchant Services
- BankCard Services
How to Apply for Merchant Accounts for High-Risk Businesses
You can apply either directly with a bank, or through a third party provider. If you choose to work with a third party provider, it is best to find a reliable high-risk payment processor before you apply with them. You will need to have the following ready when applying:
- A business plan and organizational outline
- An incorporation certificate and a shareholders’ certificate
- If your business requires a license, you will need to provide the name of the organization that issued the license and the license number
- You need to have a functioning website
- A copy of your passport and utility bill of local directors and shareholders
- Provide bank and finance records
- You should have no outstanding legal actions against you or your company
Upon making your application, your merchant service provider will review your application based on their set guidelines to determine whether your business qualifies for a high-risk merchant account.
Fees for High-Risk Merchant Accounts
Merchants pay higher fees for merchant accounts for high-risk businesses to compensate for potential risks involved. It is best to read the contract on the fees that your payment provider charges before signing an agreement. Common fees for high-risk merchant accounts include:
High-risk processors will charge setup fee to open your high-risk merchant account and connect your website.
Merchants will need to pay monthly and annual fees to keep their high-risk merchant accounts open and running. The fee depends on the business and the service provider you choose to work with.
PCI Compliance Fee
High-risk merchant account providers charge a PCI compliance service fee, charging merchants for the checks the providers make to ensure that you are handling sensitive data in a responsible manner.
An Early Termination Fee
You need to sign a contract with a merchant service provider for the period of time you agree to work together. If you decide to cancel the contract before this period ends, you will need to pay an early termination fee.
If a cardholder files a dispute concerning a credit card transaction asking the bank to intervene, and a chargeback occurs, the bank or service provider will impose a fee to cover the cost of processing the chargeback. The business or merchant will cover these costs.
A Rolling Reserve
An acquiring bank or service provider needs protection against excessive chargebacks and unexpected activities such as fraud coming from a merchant’s side. As such, the bank will charge a rolling reserve. Here, 5-10% of the credit card processed volume is secured and kept on hold for a period of 6 months after which it is released. The money released is automatically settled in the merchant’s weekly statements.
The Benefits of Merchant Accounts for High-Risk Business
Merchant accounts for high-risk business come with higher fees and high processing rates. However, this does not mean that there are no benefits associated with these accounts. Benefits include:
- High-risk merchant accounts enable you to deal in products and services that you cannot sell with low-risk merchant accounts. As such, high-risk merchant accounts give the privilege of business expansion and growth.
- Merchant accounts for high-risk business provide global coverage in conducting business where merchants can accept transactions in multiple currencies.
- With a wide range of products and services you can sell using high-risk merchant accounts, you have a high possibility of making huge profits.
Final Thoughts on Merchant Account for High Risk Business
The benefits of merchant accounts for high-risk business exceed the disadvantages. However, it is best to seek services of a reliable payment service provider to know how to go about applying for this type of account. Additionally, it is important to read the contract thoroughly to ensure you understand its terms before applying for a high-risk merchant account.