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What You Need to Know About High-Risk Merchant Accounts

Are you running an online business? Does it have the risk of chargebacks? If you wish to process credit card transactions, you would require a high-risk merchant account in this case. However, what exactly is a high risk merchant account and how does it work? Let us know the same in detail.

For opening a high-risk merchant account, you are required to search for an acquiring bank for underwriting the business. However, when you wish to maximize the overall chances of getting a proper account, it is recommended that you should seek services from a professional payment service provider for top-class assistance.

What is a High-risk Merchant Account?

A typical high-risk merchant account can be regarded as an account for payment processing for businesses that are considered to be of high risk to the subsequent banks. As businesses that are high-risk tend to be prone to major chargebacks, they are required to pay higher fees for the respective high risk merchant services.

If a business organization is available with a higher potential for major chargebacks, or if its history reveals multiple chargebacks or refunds, the bank might go ahead with imposing a rolling reserve on the account. It is the total amount of money that will be covering the overall possibility of frauds or chargebacks.

What is a high-risk merchant?

The more chargeback a particular business is known to come with, the higher is going to be the overall risk. As such, the major factors that would matter here are processing history and industry reputation. As per the experts, it is advised that you should aim at keeping the chargeback ratio to be lower than 0.9 percent of the total transactions.

Here are some of the characteristics of the high-risk merchant that you should know about:

  • Over $20,000 sales volume on a monthly basis
  • Poor credit history along with excessive chargebacks
  • Average transactions related to credit cards over $500
  • Business that sells products or services to nations that are known for higher levels of frauds

Who Requires a high-risk merchant account?

A typical instance of a business that involves higher risks is the travel industry. This is because there are several factors in the business that could lead to multiple cancelations. This would eventually result into several refunds along with an increasing number of customers filing for chargebacks. Some of the other industries include forex trading, gambling, adult-themed websites, and so more.

Fees for high-risk merchant accounts

As far as the overall fees are concerned, the truth here is that high-risk merchant accounts are known to cost much more than that for the low-risk accounts. There are some unavoidable costs that a business is expected to encounter. As such, if you are one such business owner, you are expected to be prepared for paying more with respect to the overall account fees and processing charges.

However, you should also realize that higher fees for the respective high-risk merchant accounts had been set as standard several years ago. In the modern era, you can easily come across reliable payment processors offering competitive rates that could be customized as per the specific requirements of your business. A strict commission rate of 15 percent or even higher fees are still known to exist. You are not required to be stuck in long-term contracts –those running for around 3-5 years at a stretch. The same is known to apply for additional costs.

There are several providers of high-risk payments that would still charge you with a proper monthly fee, annual fee, a setup fee, or even the PCI fee. Therefore, it is recommended to read the final contract in depth. Additionally, early termination fee might apply when you would like to close the account before the date that has been mentioned on the contact. The details that specify the termination fee are expected to be included in the given contract. Therefore, it is important to ensure that you should go through the same carefully before signing the agreement.

The payment processing industry is advancing rapidly. Therefore, you should seek services from reliable high-risk payment providers that are responsible for charging you just for the transactions happening on the website or the app.

A Rolling Reserve for the High-risk Merchants

Another costly trait for the account for a high-risk merchant tends to be the rolling reserve. It serves to be an extra layer of protection for the banks against the respective chargebacks or unreliable activities (including fraud-specific cases). Therefore, a specific portion of the volume processed under the credit card tends to be secured (mostly around 5 to 10 percent). It is known to ultimately depend on the processed volume and business model. It is held for a specific period –mostly for around 6 months. After the given period, the time reserve gets released.

The higher the particular risk a business is known to come around, the higher the value for the rolling reserve tends to be measured by the acquiring bank. After the stipulated time, the money gets released as well as automatically settled in one of the weekly statements.

It is important to note that rolling reserve could also be provided to low-risk merchants that might have just started or might possess no credit history.

Chargeback Fees

It is also important to note that chargeback fee is applied when the given cardholder might file for the chargeback. This factor might even ask the bank to dispute the given charge. It is the specific amount of money that is responsible for covering the overall administrative costs of the chargeback’s processing.

On an overall basis, the fees for the high-risk merchant accounts might end up costing twice the amount that is applied on the low-risk merchants. However, when you are running a business that is responsible for processing several transactions on a daily basis, you can go forward with negotiating rates with the respective payment processor.