If your business lies in the “high-risk” category, you may struggle to find a reliable high-risk merchant account. But who confirms that a business comes in the high-risk category? And what parameters confirm the risk? In this blog, we’ll help you to understand all this and many more things. So, you can find the right payment processor for your business requirements.
What is a High-risk Merchant Account?
Businesses that are labeled as high-risk will require a high-risk merchant account to receive debit/credit card payments. A high-risk business has a high ratio of chargebacks or frauds and some other characteristics.
But there is no central authority in the payments industry that analyzes the risk parameters associated with a business. Whereas, every bank and high-risk payment processor has its parameters.
Some payment processors mention upfront that they don’t cater to some industries. Others will hardly observe detailed information about a business to a certain risk, and their application may be rejected or accepted based on this risk. Ultimately, it all depends on a payment processor’s internal parameters and perception of risk management.
Parameters that label a business high-risk
Businesses from some industries that carry higher risks may be labeled as high-risk businesses. There are some examples of high-risk industries:
- CBD oil, e-cigarettes, and vapes
- Credit repair
- Multilevel Marketing (MLM)
- Adult products/services
- Supplements and nutraceuticals
- Tech support
- Travel Agencies
- Online Gaming
- Tobacco Businesses
- Forex trading
- Collection Agencies, etc.
On the other hand, many other parameters can label a business as high-risk.
- Some payment processors can consider you high-risk if you have newly entered and never processed payments before.
- If you have poor credit records or a low credit score, your risk perception may increase.
- If your business has controversial products or runs your business on a slippery legal track.
- Businesses that are providing international sales may also have high-risk classification.
- Industries that have regulations by government or legislation are also labeled high-risk.
- If your business offers card-not-present payments, you will need a high-risk merchant account.
How does a High-risk Merchant Account Differ from a Regular Account?
Labeled as a high-risk business can reflect to be quite daunting. A payment processor may easily reject your application. However, a high-risk payment processor may choose to offset your inherent business risk by forcing some measures.
These are the primary factors that differentiate between a high-risk merchant account and a regular merchant account
- Longer application process. If you are applying for a high-risk merchant account, then a payment processor may ask for detailed information to observe your risk profile or study past flows of your financial terms. Usually, payment service provider companies will check your business’s processing history, your personal credit history, and your partnerships.
- Higher payment processing fees. For small businesses, payment processing fees may be 0.3% above the interchange rates. But for a high-risk merchant account, this could go up to 1.5% with an interchange rate. However, interchange fees may vary according to the company, and higher risk will have a higher fee.
- Cash reserve requirements. Some payment processors may hedge a certain amount of cash for a business. They may manage the thresholds of this reserve in several ways.
- Rolling Reserve. A high-risk payment processor keeps aside a part of every transaction you will process. It can be as higher as 10%.
- Upfront Reserve. A high-risk payment processor receives a part of the amount from the merchant upfront. Sometimes, the processor may hold all transactions until the merchant pays the purchased amount.
- Higher chargeback fees. When a business requires to process refunds, they must also pay chargeback fees to their payment processor. For businesses that have a high chargeback ratio, this fee may be higher to offset the risks of excessive chargebacks. Whereas, these rates may come anywhere between $20 to $100 each.
- Volume caps on the transaction. Some payment processors may stop you from processing more transactions if your sales volume exceeds a specific limit. Processors assume that risks may be higher when dealing with high volumes.
How to get a high-risk merchant account provider?
As a high-risk merchant, you may not be able to find the pricing structure details for a high-risk merchant account on a payment processor’s website or other similar platforms. Rather than that, you will need to fix meetings or private consultations with their members to put your case at priority.
You can start by noting down some high-risk payment processors that cater services to your industry. Some popular ones specialize in high-risk merchant accounts.
When you have some options in your hand, you must look at what everyone brings to the table. You can choose based on the following things:
- How much experience do they have working with businesses in your respective industry?
- How long it will take to allow you to accept payment?
- Do they have a reserve requirement?
- Along with credit and debit cards, do they support eChecks and ACH payments?
- Will they charge an early termination fee if you switch to another provider in the future?
- What types of equipment do they provide (like POS machines, virtual terminals, etc.)?
- How accessible and robust is their customer service?
How to apply for a high-risk merchant account?
To accept online payments you will need to find a reliable high-risk payment processor. Yet, the process to apply for a high-risk merchant account is short and easy. You will have to fill out an application form. For example, if you choose HighRisk Gateways as your payment partner. They will help you to find a bank that is suitable for your business requirements. When your business gets approved by the acquiring bank, you can start accepting online payments.
You must be ready with these documents before applying for a high-risk merchant account:
- Incorporation certificate
- Shareholder’s certificates
- Copy of your passport
- Address proof with a utility bill
- Bank statements of last three months
- Processing history of recent six months (total number of transactions, chargeback percentage)
- The license number with the name of the organization that issued the license
Does HighRisk Gateways Serve High-risk Businesses?
High-risk merchants have a limited number of payment providers they can work with and HighRisk Gateways are one of them. For example, if you have an adult toys business, an online casino business, HighRisk Gateways will be able to serve your business with a high-risk merchant account.
The primary benefit of partnering up with HighRisk Gateways is that a merchant will have to follow an underwriting process before getting a merchant account. This procedure labels risk factors initially and saves your precious time and costs. We’ll let you know if we can’t provide you with the payment service and even suggest to you some ways to modify your business and you can re-apply and get the best solution.
As it is clear from the above discussion that some businesses have inherent risk factors. Also, the definition of high-risk varies from one payment processor to the next. Moreover, there are some high-risk payment processors whose entry point is easy but merchants have to face the risk of being cut off at any time.
By choosing a payment service provider like HighRisk Gateways, you can get relaxed that there would not be any unfavorable surprises for you later on. Contact us today for a better consultation so that we can analyze your business’s risk factors and provide you with the best solutions