If you run an online business with a higher risk of chargebacks and want to process credit card transactions, you need a high-risk merchant account. But what is a high-risk merchant account, and how do you know you need one?
When you are running an online business or any business on a larger scale, and you want the exchange of money through credit or debit card transactions, you will need a merchant account, a high-risk merchant account.
What is a merchant account?
A merchant account is a type of bank account that allows businesses to have smooth transactions through credit or debit cards. There are few steps involved, and then you can easily open your high-risk merchant account for the company.
What is a high-risk merchant account?
The word high risk suggests that the risk of these accounts is high as they are not just any typical accounts but are the accounts for businesses. These account holders pay considerably higher fees for the merchant services.
If your business comes with higher chargebacks, the bank may put a rolling reserve on your account to keep things under check. It then covers the money from chargebacks and frauds.
What are the types of merchant accounts?
There are generally two types of merchant accounts; low-risk merchant accounts and high-risk merchant accounts. These types are based on the kind of business you are dealing with and what benefits or risks are involved.
➢ Low-risk merchant account:
Generally, the low-risk merchant accounts are identified through the following;
● Monthly processing is below $20,000.
● On average, the credit card transaction made is under $500.
● The business is a low-risk business.
● Minimum chargeback ratio.
➢ High-Risk Merchant Account:
A risk merchant is identified through the chargebacks that are attached to it. Higher the chargebacks, the higher the risk of merchant accounts.
A few of the significant and typical characteristics of high-risk merchant accounts are as follows.
● They differ regionally depending upon the choices of the businesses.
● The monthly sale exceeds $20,000.
● On average, the credit card transaction is made is more than $500.
● The products and offers are sold to those countries that are known for high-level frauds.
● Excessive chargebacks along with bad credit history.
Why a high-risk merchant account?
The travel industry is one of the examples of high-risk businesses. Some various reasons and factors can cause cancellation in this particular aspect.
And then, multiple refunds and complaints of chargebacks occur filed by the customers. Another high-risk business involves; gamble, adult content online, and much more.
Few businesses that need high-risk merchant accounts are as below;
- Airlines of airline charters
- 800 type chat sites
- Adult content online (that may include prostitution, phone calls, several websites, matchmaking websites, etc.)
- Illegal goods /Banned services
- Annual contracts
- Attorney referral service
- Casinos, gambling
- Cigarettes, vapes
- Coupons or rewarding programs program
- “How-To”-type websites (i.e., “Learn How to Make Money on The Internet”)
- Horoscopes, astrology or psychic services, fortune-tellers
- “Hype” products or services
Several other businesses come under this said category. But if your business is any from above, you definitely need to be signed up as a high-risk merchant account. And in that case, you will need a higher amount to deal with than the regular accounts.
What are High-risk merchant account fees?
High risk costs more than that of a low-risk account because sometimes there are inevitable losses that you have to face in your business. So to avoid that, you need to pay more for the processing charges and the account fees.
High fees of these high-risk merchant accounts were set ages ago as a standard, and that standard is still applied to every merchant account even today. But there are some rates that are offered to you which you can opt for. These competitive rates are tailored for your business.
Several providers still charge setup fees, monthly fees, and annual fees, and whatnot. There are details in the contract that you need to read carefully before signing up for such an account.
Look for the payment process; you are only charged when the transaction is done through your website or the app.
A rolling reserve is an additional layer that serves as protection for banks against chargebacks or unexpected frauds. In order to do that, a certain part of your credit card volume is secured. The time is reserved for this secured volume, and after that, it is released. The minimum time is six months.
How do I apply for a high-risk merchant account?
To get a high-risk merchant account, you need to fill out an application online. Of course, to accept card payments, you also need to find a reliable high-risk payment processor.
An online application is provided to you when you need to get a high-risk merchant account, but it is very reliable. The process is short and simple. There are several options available to you that you can choose and that will help you find a bank that matches your business needs. Once the bank has approved, you can start your online payments or mobile payments.
Before you apply, here is what you need to remember to have;
- Certificates of incorporation.
- Certificates of Shareholders.
- Structure chart of organization.
- Copy of your passport and utility bill of local directors.
- Incorporation certificate and shareholder certificate of other firms if there is another shareholder.
- History of processing of the last six months at least. This includes total volume, number of transactions, and chargeback percentage.
- User credentials are tested with premium access to the platform.
- The license number and name of the organization that issued the license (if you run a business that requires a license).
Read their contract carefully. There is no online contract available usually, but when you obtain a copy of the payment and the terms, read them thoroughly. A tip, when you are applying to be a high-risk merchant, remember that the terms might be stricter than regular accounts, so it is always advised to go through the contract carefully. Check for all the hidden fees, extra rates, and the rolling reserve.