High Risk Merchant Accounts: 5 Things To Know
Understanding what makes a merchant account high risk can help merchants be prepared. Many factors figure into the determination of a business's risk. Not all banks and payment processors will accept all merchants either. There are payment processors and acquiring banks that specialize in high risk merchant acceptance, granted that they provide complete and honest documentation. Partnering with a specialized payment processor and following their guidelines may even reduce the risks associated with your business.
Understand what is a high risk merchant account. This way you’re well-prepared when it comes time apply for a merchant account.
First, what is a merchant account?
A merchant account is a business bank account that allows the movement of funds between issuing and acquiring banks to settle transactions made using credit and debit cards.
The type of industry you are in, your location, and even your credit history all determine your merchant account classification. Depending on the nature of your business, you may need a low-risk or high-risk merchant account.
What is considered a high-risk merchant account?
Most trades that need high risk merchant accounts are those that are prone to higher chargeback rates, is in the grey area, or deals with high amounts of transactions regularly. Some of the industries that are known to be high risk are:
- Adult Entertainment
- Cigarettes, e-cigarettes, tobacco, etc
- Debt consolidation services
- Electronics (both computers and accessories)
- Foreign Exchange
- Financial Services
- Firearms and Ammo
- Gambling and Online Gaming
- Jewelry and Luxury
- Online Pharmacies
- Subscription Services
However, industries aside from the ones listed above are not automatically considered low risk. A bad credit score or financial history can be the factors for getting tagged as high-risk. The same thing goes for businesses that are based in countries with lower security standards and higher rates of fraud. These countries include Ukraine, Mexico, the Philippines, Nigeria, Indonesia, Pakistan, and Lebanon. The current status of your business can be a factor as well. If you are a startup company, you would most likely be considered for a high-risk account.
Needless to say, there are still other considerable reasons for your company to fall under the high-risk category. And for that, you will need to take a look at the difference between high risk and low risk merchant accounts.
Low risk or high-risk? Which type of merchant account is right for your business?
There is no set standard that automatically identifies your business as low or high risk. This is mostly the decision of your merchant account provider. Every financial institution follows its own policies. However, you can look through a few reasons that commonly affect your risk designation.
It can be expected for businesses primarily located in regions within the European Union and North America, Canada, Australia, Japan, Singapore, and South Korea to be tagged as low risk. These areas implement a strict security standard which is highly important to processors. Low risk accounts also use a single form of currency in all of their transactions (payments or otherwise). Usually, these low risk accounts also process an average ticket of less than $500 and a monthly volume of $20,000 sales or less.
On the other hand, high risk accounts are total opposites to those factors above. Selling products and services which are heavily regulated by the government is easily expected to be high risk. So are businesses that offer subscriptions.
With all that said, the next point to understand is the processing time for these types of accounts.
How long does it take to set up a high-risk merchant account?
Payment processors will look into the details of your credit and banking history. A high risk credit card processing merchant account provider can help you to get instant approval. This instant approval does not necessarily mean right at that minute.
High risk merchant account providers can make it possible to set up an account after a day or two. Considering that it really takes a longer period for the setup of these accounts unlike low risk accounts, a day is indeed significantly quicker.
What are the cheapest high-risk accounts?
There is no fixed price list for high risk merchant accounts. High risk processing merchant account fees will vary for every Merchant Service Provider (MSP). Generally, the cheapest high-risk account is something that has a low processing fee and a much favorable contract agreement.
Some merchant account providers will charge a flat rate for every transaction regardless of the amount processed and there are those that will charge on a percentage basis. Aside from that, you also need to check the type of reserve your account provider has for your high-risk account. And lastly, review the terms and conditions under your contract. This will give you a good insight on the overall amount you need to cash out.
How to open a high-risk merchant account
The process starts in finding the best high-risk merchant account provider suited for your business. What’s best for one company may not fit yours. Research the payment processor and read the fine print before you sign a contract. Some important things you need to know if they have a reliable customer service. Check their client reviews and testimonials, and ask their clients about their services. These are just some of the important questions you need to know in a high-risk merchant provider.
Do not attempt to hide some facts about your business just to speed up the process of acquiring a merchant account. Processors will eventually find out and this can be a valid reason for you to be put in the MATCH list or also known as the Terminated Merchant File (TMF) list.
Instead, find an excellent high-risk merchant account processor such that of Allied Payments. We are experts in high risk merchant accounts for businesses in online gaming, cryptocurrency, Forex, and more with a PCI-compliant high-risk payment gateway. Open your high-risk merchant account with the right partner. Contact us and get started right away!