A high-risk merchant account indicates that your payment processor has increased the risk of chargebacks or fraud for your company. To offset the risk that the processing operator is taking on, high-risk merchant accounts have higher processing fees. The definition of a high-risk merchant account and the implications for your company are explained in this article.
High-Risk Merchant Account: What Is It?
If a payment processor determines that your account is more likely to experience chargebacks, fraud, or a significant number of returns, they will assign your account a high-risk rating.
This might be the case for a variety of reasons, such as the fact that you are a new firm that has never handled transactions before or because your business is seen as hazardous and has a higher chance of being a victim of fraud (due, for example, to the usage of contentious items). To offset the risk, high-risk merchant accounts have higher processing fees.
Higher Fees Result From Risk
Although there are differences between each credit card processing system, high-risk merchant accounts are more expensive on all of them. Every transaction will have processing fees that are higher and, in some cases, double those of merchant accounts with minimal risk. Although chargeback costs are also paid by low-risk businesses (you pay them when a consumer disputes a transaction directly with the credit card they are using), high-risk merchants often pay higher chargeback fees.
A high-risk company can be forced to sign contracts with longer terms, an early termination charge, or an annual or monthly price. A roll-over reserve may be granted to high-risk merchant accounts, which means that the processor will withhold the appropriate portion of your earnings until it is certain that your transactions are neither fraudulent or at risk of chargeback.
How can I open an account with a high-risk business?
You must provide tax and company papers when you apply for an account with a shop. Following approval of your application, the payment firm will determine if you are a low-risk or high-risk merchant and adjust the plan as necessary. Clients with high risk are better suited for certain payment processors.
It's a good idea to research several providers, select the one that best suits your business's demands, and be aware of the merchant ID number. It is important to make it mandatory for customers to carefully read the contract before selecting a payment processor. Each financial institution and payment processing system is unique and has its own requirements for high-risk merchants.
Reasons why retailers are viewed as high-risk
There are several reasons why a payment processing firm can classify you as high-risk, while some of them might appear obvious at first. Although every business maintains a list of high-risk merchant accounts, this is the situation that is most likely to qualify.
The high transaction volume: Businesses that have a high amount of transactions or an average transaction rate may be regarded as high-risk. A corporation may be considered high risk if it handles more than $20,000 in monthly transactions or can handle an average of at least $500.
They accept foreign payments: Let's say a business sells goods abroad to nations where there is a greater danger of fraud. They could thus be regarded as high risk (any country that is not in the U.S., Canada, Japan, Australia, or the countries of Europe).
The business is new: A merchant may be deemed high-risk if they have never processed transactions before or have very little expertise doing so. This is because they don't have a track record.
High-risk industry: Even if a merchant has a flawless record, they could be categorised as high-risk since their line of employment is deemed to have a higher incidence of fraud, returns, and chargebacks. For instance, businesses that provide subscriptions are viewed as high risk because the majority of clients sign up for trial services before forgetting to stop paying. When customers analyse their statements and discover omitted costs, they usually take the money back.
Low credit score: It's possible to classify a merchant as high-risk if their credit rating is subpar.
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