If a company wants to take credit card payments and has a higher risk of fraud or chargebacks, or if it has certain additional criteria, it must have a high-risk merchant account. Before being sent to the company’s bank account, money received from a card payment is initially kept in a merchant account. Merchant accounts are frequently included by payment processors; however, many of these corporations won’t deal with companies that they deem to be “high-risk.”
Companies may be classified as high-risk due to their industry (e.g., sales of tobacco products or firearms), foreign sales, subscription pricing, or low financial reserves. High-risk merchant accounts can help with that.
In the payments sector, there is no one structure or central body that establishes what elements are considered dangerous. Rather, every bank and payment processor creates its own set of guidelines.
While some employers actively discourage working with specific industries, others accept applications from all candidates. In general, payment service providers have stricter regulations regarding the kinds of businesses they will accept than merchant account providers. You will be required to submit an application containing information about your firm in either scenario.
KEY FEATURES of HIGH RISK MERCHANT ACCOUNTS
More processing fees for payments. A typical retail small-business account may have a competitive payment processing cost of 2.6% plus 10 cents, whereas a high-risk account may have a fee of 2.95% plus 25 cents. A high-risk merchant would pay $1.73 for a $50 charge, whereas a typical retail shop would pay $1.40 at such rates. The actual costs differ every business. You can estimate payments with the aid of our credit card processing fees calculator.
Longer procedure for applications. You might receive approval for a typical small-business account in as little as a few minutes. However, it may take several days for high-risk accounts to be approved. Merchants deemed high-risk may be required to provide additional details about their company, such as bank statements, and may have their credit examined personally.
More chargeback costs. Businesses frequently incur chargeback fees—which can vary from $20 to $100—when a customer contests a charge.
Requirements for cash reserves. As a precaution, the payment processor may retain a portion of the funds from a high-risk company. Usually, the following techniques are used to incorporate these cash reserve needs into the actual payment process:
- Sealed off supply. Until the total amount reaches a predefined threshold, a portion of each completed transaction is retained by the payment processor. After that, contributions cease, and the reserve is kept until it is needed. For instance, you may set aside 10% of your revenues until they reach 50% of your monthly processing cap.
- Rolling stock. You receive a portion of each completed transaction—up to 10%—that the payment processor sets away. For instance, if the six-month rolling basis is used in your agreement, you will receive the balance from January in July, February in August, and so forth.
- Upfront booking. A predetermined sum that is sent by the merchant to the payment processor is used as the reserve. There are instances where the payment processor will instead withhold all completed transactions until the set amount is reached.
Caps on volume. The overall amount of money you handle each month or the number of transactions you accept may be restricted by your payment processor.
Extra technological specifications. For instance, the payment processor may demand that you utilise tools to make sure you aren’t selling to consumers who are underage if you sell age-restricted goods or services.