A Brief Guide To High-Risk Merchant Accounts

merchant account

September 27th, 2019   |   Updated on October 4th, 2019

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Electronic payments are becoming the norm for conducting business. Very few businesses can operate as a cash-only business.

Doing so limits their sales and forces them to turn away countless customers. It is hard to attract new customers without offering electronic payments.

The rise of eCommerce and online shopping has emphasized the need for these payments and if you are running a business, you must ensure that you set up with a merchant account to accept credit cards and other electronic payments.

However for some companies obtaining a merchant account might not be that easy, if they are considered high risk.

What Is A High-Risk Merchant Account?

To understand the difference between a high-risk merchant account and other merchant services, we need to explain how they work.

A business wanting to accept electronic payments enrolls with a provider (typically a bank or bank partner) to handle the transactions, which includes funding the business for all their credit card sales.

The provider pays the merchant for their sales within one business day, and then gets paid at a later date by the card networks such as Visa, MasterCard, and American Express. The funds come from the credit card issuing bank.

The merchant account provider and bank hold the risk during the transaction; they have to account for this.

Businesses that have risky transactions expose these providers, to increased losses from unpaid chargebacks or refunds. High-risk businesses are ones in industries where the probability of chargebacks and fraud is high.

Are You A High-Risk Merchant?

Merchant Account

The concept of applying for a merchant account can be compared to that of applying for a loan. When you apply for a loan, the banks consider the amount of the loan and the likelihood of getting paid back.

When a business apply for a merchant account, the banks consider the amount of sales and likelihood of chargebacks or refunds and the business’s ability to cover them.

In this way, merchant service providers analyze businesses that apply for a merchant account before approving the applications. Here are some things that they look into;

  • Nature Of Business Activity.
  • Business Financial Health.
  • Credit History.
  • Merchant Account History.

Examples Of High-Risk Businesses

Merchant account providers have developed a list of business types considered high-risk based on their activities, and providers are not keen on offering accounts to these businesses.

If your business falls in any of those industries, there is a high chance that you will have to get a high-risk merchant account;

Businesses that accept card not present transactions are considered high risk due to the possibility of fraud.

The pharmaceutical industry is deemed to be high risk due to the issues surrounding it, as well as companies that operate in many countries. This is all due to the likely threat of fraud or high levels of returns and chargebacks.

Other High-Risk Merchant Types Include:

  • Network Marketing.
  • Big Ticket Items .
  • Gaming Or Gambling
  • Adult Entertainment.
  • Firearms

What Next?

If your business falls under one of the high-risk categories (those mentioned above are only a few), you might be wondering what you need to do. Well, it will be harder to get a merchant account, but it is not impossible.

You will get ahold of a merchant service provider that specializes in high-risk merchant accounts. You might be forced to pay more for these services and most providers will ask you to establish a reserve account to help to manage the risks involved.

They may ask for additional details or financial records in order to get your application to be approved. You may also be required to meet additional requirements, such as verifying extra information with each transaction, or clarify your refund policy.

Another consideration for when needing a high risk merchant account is that you need an online payment gateway that will allow you to accept online payments.

Not all payment gateways allow for high risk processing. One popular gateway that does allow for high risk (and even international) processing is the NMI Gateway.

The NMI Payment Gateway allows any merchant who actually has an approved merchant account the ability to accept payments online. Their gateway seamlessly integrates with most website shopping cart systems.

In a nutshell, you will may to abide by some additional requirements and pay higher fees if you are to set up an electronic payment account for your business.

These service providers assume all the risk, and it is normal for them to be strict. However, if you abide by their guidelines and take measures to minimize risk, everything will be fine for you.