Explain different types of high-risk businesses & why you need a merchant account.

by | Dec 17, 2022 | merchant account

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what are high risk merchant accounts

In this article, we will closely examine and get into the details of
• What are High-risk merchant accounts, and
• Types of high-risk businesses.
We’ll open up these two very confusing topics for our readers to provide clarity and help them enhance their knowledge on the same.

Also read: Best 5 payment gateways for small businesses 2023

What are high risk merchant accounts?

In simple words, a high risk merchant account is when your payment processor has labeled your business at a higher risk of either fraud or chargebacks, or both. Hence, high-risk merchant accounts pay higher processing fees to compensate for the risk the payment processor is taking on their risky business.

Complete details about What Are High Risk Merchant Accounts?

What are High risk merchant accounts? Let us deeply analyze, examine and gain knowledge about what exactly is a High-Risk Merchant account.
Basically, when a payment processor labels a merchant account high-risk when they’re determined or sure, your business account is at higher risk for chargebacks, fraud, or a high volume of returns.
There could be many reasons for the payment processor to tag the business account as High-risk such as – you are a new player in the field, which means you are a new merchant who hasn’t processed payments before, or because your industry is considered high-risk and has a high chance of fraud (e.g., controversial products).
And therefore high-risk businesses are charged a higher fee.

Also read: Credit card processing and payment gateway

High-Risk High-Fees: why?

Every credit card processing platform is not the same, but high-risk merchant accounts will be subject to higher fees across the board. In general, processing fees for all transactions will be higher for high-risk merchant accounts, sometimes even more than double that of low-risk merchant accounts.
Low-risk merchants are also paying a chargeback fee (a fee you pay when a customer disputes the charge directly with their credit card), and high-risk merchants here as well generally pay higher chargeback fees.
High-risk merchant mostly has an obligation, for a more extended period of the contract, an early termination fee, or a monthly or annual fee.
High-risk merchant accounts are also subject to a rolling reserve, where the payment processor will hold a certain percentile of your income till it further verifies your transactions were not fraudulent or at a high risk of chargebacks.

Also read: Credit card processing and payment gateway

What are High Risk Merchant Accounts: reasons to consider as such

In the above article, we shared with you all the information related to What are High risk merchant accounts and now we are going to share with you reasons to consider them. There can be various reasons for the payment processor to classify your business as high-risk. Some of these reasons are obvious, others nuanced. Every payment processor has a different set of parameters to classify the business as high or low risk. But generally, these are the few red flags, which will surely land your business on the High-Risk side and are:-

New Merchant: If the merchant is new in the arena of business, or has a low record of payment transactions, then they’ll be classified as a High-Risk business account because of no previous track record.

High Transaction Volume: Merchants may be classified as high risk if they have a high volume of transactions or have a high average transaction rate. If a merchant processes over $20,000 of payments per month, or has an average transaction of $500 or more, then they may be classified as high-risk.

Sale internationally: If a merchant sells to customers internationally in countries except for the U.S., Canada, Japan, Australia, or the countries in Europe, that are listed as high risk of fraud, they may be considered high-risk.

High-risk company: Despite having a clear record, a business can land on a high-risk slab, just by the very choice of the field which is labeled as high risks, like- subscription-based companies, etc.

Poor credit score: Low credit score is the most common of all the reasons, which will be enough to make you land in high-risk business criteria.

Also read: Best Small businesses credit card processing

Businesses: considered High-risk

Here are some businesses which fall under the category of high-risk businesses, hence it would be a boon to take a look at them before starting up a business. Some of these businesses are:

~Adult industry
~Travel, including airlines, cruises, and vacation planners
~Furniture and electronic stores
~Online dating
~Multilevel Marketing (MLM)
~E-cigarette, CBD, and vape shops
~Subscription services and companies with recurring payment plans
~Debt collection

How to get a high risk merchant account?

In order to get a high risk merchant account you have to apply. You’ll be asked to provide the financial documents (business and tax). After the examination and processing of your application, the payment provider would classify your business either as a High-risk or low-risk business and plan it forward accordingly.
Some payment processors are highly suitable for specifically high-risk businesses, hence before choosing a payment processor, make sure you choose the processor as per your needs and suitability.

Also read: What is a merchant account? Do you really need one?

High-Risk v/s Low-Risk businesses

What are High risk merchant accounts? With the help of certain parameters, the classification is done for high-risk or low-risk businesses. Parameters are as follows:

  • Average transactions under $500
  • Low transaction volume (less than $20,000 per month)
  • Businesses in countries labeled low risk
  • One currency
  • Very low or zero chargebacks and a low percentage of returns

•Industries labeled low-risk

Also read: How to Get a Business Credit Card with an EIN Only

The owners must keep in mind that the risk status is subject to change depending upon how the company is performing lately or how it has performed over a period of time.

For more information contact us at Your Merchant Services Rep.