When running a business, there are certain facts and procedures that you need to be aware of. If you operate a business that comes with a higher risk of chargebacks, but you need to perform credit card transactions, you should have a high-risk merchant account. However, you need to know certain things about this kind of account before you get one.
What Is It?
A high-risk account is described as a payment processing account for specific businesses that are viewed as posing high risks to the banks. If a business is considered to be high-risk, it is prone to chargebacks. A chargeback is money returned to the cardholder following a dispute over a transaction that may be fraudulent. Businesses that can experience chargebacks need to pay higher fees for the merchant services offered. When your venture has a history of many refunds or chargebacks, the bank may need to put a rolling reserve or money that will cover issues related to fraud.
If you have a small business, you may not hear about high-risk merchants until your business is identified as such. This may seem like an unfair verdict against your business including the products and services you offer. However, this is not the case since this is just terminology used by the merchant providers to show that your business poses high risks for chargebacks. This is not related to how your entity operates.
Who Needs this Account?
Certain businesses are considered high risk due to certain factors like the location of the business. This can be an offshore account, or you may be operating in a sector consisting of high fraud as witnessed by the number of chargebacks. If your business fits this description, you will need a high risk merchant account so that you get suitable card processing. Your account can be terminated by the merchant provider if your business is categorized as high risk. This means that you should find an alternative.
Mainstream and high-street providers usually decline high-risk businesses depending on the level of threats they pose. The following are some of the industries regarded as high risk.
- Betting and gambling
- Payday loans
- Dating services
- Travel agents
- Tobacco shops
- Drug or herbal remedy providers
- Insurance companies
- Data sharing firms
- Advertising services
- Debt management companies
- Membership/subscription businesses
If you operate a business that belongs to any of the industries above, you need to make sure that you have this kind of account to be able to process credit card transactions on your website.
What are the Fees
This type of account comes with higher costs than low-risk businesses. Many high-risk payment providers charge set up fees, annual or monthly fees. Additionally, you may also be charged an early termination fee if you want to close the account earlier than agreed. Therefore, you must read the contract carefully to understand all terms and conditions before you sign it. Remember that this particular kind of account comes with stricter terms compared to a regular merchant account.
A rolling reserve is another expense you should expect when you open this account. The fee protects the bank against issues like fraud and chargebacks. Chargeback fees are meant to cover administrative costs when the cardholder files for a chargeback.
How to Apply
You must complete your application online, and the entire process is short and simple. All you need to do is choose a reliable payment partner and get a bank that suits your business needs. On top of that, you also need the following items to apply:
- Shareholder’s certificate
- Incorporation certificate
- Utility bill and copy of passport
- Processing history covering the last six months
- Shareholder certificate and incorporation certificate
- License number
The risk management experts will review your application and details to see if you qualify for the account. Your history must be clear of incidents of fraud, and you should not have lost your last account as a result of the high chargeback ratio. These factors may impact your application. Remember that the experts handling your case may consider other elements you may not know.
While this account comes with higher fees, it offers many benefits. You can use it to access larger markets by accepting multiple currencies from countries with low risk. It is possible to expand your business with this account since you can sell products and services that are prohibited when you have a low-risk account. This will help you generate more profits. You also get high chargeback protection which can give you peace of mind. If you have a regular merchant account and you cross the chargeback threshold, it can be terminated.
How to Choose the Best Provider
There are several high-risk card processors available on the market, so you must do your homework to get the best provider. You need to consider many things to make an informed decision such as responsive support. When something wrong happens to the payments on your site, you should get a prompt response. Make sure the processor offers flexible payment options to suit your business needs. Check if you can customize different elements of the payment system.
Another crucial element you should consider pertains to the pricing of the service. The technology must stand out from the rest to prevent downtime when the system is disrupted. The providers should have fraud prevention tools and follow strict security rules. Expertise is another crucial trait you must prioritize to get the best processor.
It’s definitely not an easy task to take on starting a new business. However, once you know what needs to be integrated to make it a smooth sailing endeavor, the sky’s the limit. Among these details, you must understand what makes a business high risk. There are several reasons why some businesses are considered high risk. If your business is regarded as such, you need to set up a high-risk merchant account to cover the costs of chargebacks or other related refunds. When you process payments using a reliable high-risk payment processor that prioritizes security, the chances of fraud and chargebacks will be reduced. You need to get more information before you get one.