What is a High Risk Merchant Account
We pay for the goods and services we receive in a variety of ways. Aside from paying merchants directly in cash, we also deal with banks and payment processors. What you don’t know, however, is that these merchants may be categorized by these financial entities as high risk merchants. Here is all you need to know about what is a high risk merchant account.
What is a High Risk Merchant?
A merchant or business entity is considered a high risk merchant if their accounts pose many risks or are prone to chargebacks. It is a business bank account given to businesses that display a degree of risk associated with their business. These risks may be a range of different factors.
For example, a business is considered to be a high risk merchant if they have a bad or flawed credit history. A business can also be labeled as high risk if their industry or business niche involves risky reputation, as in gambling, firearms, or adult content. A business may also post health risks, such as selling liquor, cigarettes, etc. Another high risk merchant involves those who are also involved in financial risks, such as in lending companies. Furthermore, if a business also has high chargebacks or fraud rates, it is also considered high risk. This can be determined not by your business but the actual behavior or pattern of your customers.
If you’re an offshore company that operates in a different country, like in the United States, the US banks may also consider you as a high risk.
The Challenges of a High Risk Merchant
Because of their categorization, many acquiring banks or credit card or payment processors are not so keen on providing these kinds of merchants account or financial solutions. This is because they may see that the risk outweighs the rewards.
Some high risk merchant accounts are not even entertained to get accounts, especially for credit card transactions. For others, the business may be charged at significantly higher rates and fees than if you were not tagged as high-risk. There are also providers who specifically cater to high-risk merchants, but charge exponentially higher rates and even outrageous fees with very steep terms.
There are merchant services providers that offer services at very low prices, and they strictly avoid high risk merchants because they want to keep the low cost of their services for their existing clients.
Finding the Right Merchant Provider
High risks merchants should understand that the cards are stacked against them. While there are reputable providers, the market is also filled with predatory ones who are keen on getting the most money out of the desperation of high-risk merchants.
If a high risk merchant is fortunate enough, they may come across a provider that gives high rates and fees, but at a fair level, with fair terms as well. This is hard to come by, and you can expect a long search as you get turned down by one provider after another.
There are some high risk merchant providers that offer top-notch services at fair and reasonable prices. In order to distinguish the grain from the chaff, so to speak, you have to first check their websites. It’s particularly helpful to read up on reviews to see how they have served their other clients.
Once you have chosen the provider that you want, be sure to also read on the fine print. Read the contract thoroughly, and even check with a legal counsel if necessary.