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High Risk Merchant Accounts

Understanding High Risk Merchants

Those who run online businesses run high risks when it comes to processing credit card transactions. In most cases you will be required to have a high-risk merchant account, which has several different characteristics to standard accounts.
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High Risk Merchants

High-risk merchants are those who banks may not want to take a risk on, or who may be charged higher fees as a result of their being a high-risk business. These businesses generally fall into one or more of the categories that are listed below:
  • Startup business with minimal or no history in credit card processing
  • Business within an industry that sees a higher than average rate of chargebacks/returns
  • Business offering products or services that are high cost
  • Business offering subscription-based services or products
  • Business that has already had a terminated merchant account
  • Business with poor credit history or history of bankruptcy
  • Business with a high volume of sales
  • Business attempting to work within a specific country or region that is considered high risk

The Process of Evaluating Risk

When determining the risk level of a merchant prior to offering a merchant account, there are a number of factors that are taken into account. The more of these factors are present, or the ‘worse’ those factors are, the higher risk the business is considered to be. Keep in mind that some institutions may have additional factors that they consider in determining high risk.
  • Previous merchant accounts have been terminated and the merchant is registered through the MATCH List database
  • The business is too new and does not have sufficient payment processing background
  • The industry that the merchant belongs to has a higher than average change of chargebacks or is classified high risk by card networks by MCC
  • The merchant uses a subscription billing model for the sale of products
  • The merchant markets and sells products or services to countries that are considered high-risk
  • The merchant sells custom made products
  • The merchant has higher than average tickets as an average of all tickets
  • The merchant offers delivery of goods as delayed or future
  • The merchant sells products that are considered a reputational risk for the acquirer

Evaluating Risk

High Risk Merchant Accounts

Even with all of this information, however, and the added risk and drawbacks associated with high-risk merchant accounts, there are some benefits to processing in this manner. For example, these individuals are more likely to have money in reserve and are also likely to pay more in chargeback fees and transaction processing fees. This is considered compensation for the potential problems that could occur as a result of the issues discussed above. But they generally also have a higher offering for chargeback-to-transaction ratio.

Is Your Business High Risk Labeled?

Let’s say you’re interested in getting a merchant account for your business and decide to fill out an application for one as a traditional account. Perhaps you then were rejected and you weren’t really sure why. The likely answer is that you are considered high risk, but you may not even have known that you were considered high risk. You could be labeled this way if:

  • You offer services that are considered a health and safety concern
  • You experience high rates of employee turnover
  • Your business has extensive high-dollar transactions
  • Your business is considered to have low viability or continued profitability
  • Your business is still considered a startup and does not have extensive credit card processing history
  • Your business experiences a high number of refunds or returns
  • Your business is considered a new concept in the market and does not have extensive room for continued growth
  • Your industry experiences a high chargeback ratio
  • You have a poor credit card history
  • The products or services that you offer are subscription based
  • You work with multiple currencies because you are an international merchant
  • You have only been in business for a short amount of time
  • Your business is in an industry with a high risk of fraud

Evaluate Safety and Security

Some people believe that getting an offshore merchant account is only necessary for high risk businesses that are not able to get domestic bank approval. The truth, however, is that high risk businesses and merchant services tend to have a large amount of money involved. As a result, the seller needs to be able to demonstrate excellent security for credit card transactions and safe payment framework. Evaluating past customers to get positive references related to high risk clients is extremely important for the high risk business that is looking to use this service.

Benefits of Working with a Team

If you’re considered a high risk business and you’re looking for ways to improve your chance of getting a merchant account you’ll want to talk with us about the options. We can help you get a merchant account so you can accept credit card payments and grow your business. If you are considered high risk you still need a secure merchant account, and that’s where we can assist you, whether you’re considered high risk or not and whether you’re in B2B, retail, e-commerce or any other industry.

Increased Rates and Fees

You’ll find yourself paying more in fees and all rates when it comes to having a high risk account, and because of the high risk nature of your business you’ll have less flexibility to negotiate with. Low risk businesses can negotiate about contract terms, but for high risk businesses this is more difficult, especially when it comes to monthly charges and fees. But you can work with us to find new options that will help your business in whatever way possible to mitigate these fees and more.

Why is There High Risk?

High risk processors are actually designed specifically for businesses like yours. They’re designed to make sure that those who wouldn’t otherwise be able to get a merchant account are now able to do so. If you haven’t been approved by a financial institution or you have bad credit or you fit any of the other qualifications to become a high risk business these are things you’re going to need to think about. You’ll end up paying higher fees, but you will generally have good customer policies if you go through a specific high risk provider, this increases your chance of approval with them.

Offshore Merchant Accounts

If you’re a merchant in a non-resident country you may need something a little different to help you. It’s called an offshore merchant account and it allows you to utilize international bank accounts for credit card processing. It’s a different type of direct account that allows you to process your payments, making sales and more. Not only that but they can offer credit card processing even if you are considered a high risk account or business.

High Risk Account

What Makes Your Merchant Account a High Risk Account?

Whether you are high risk or low risk will be determined primarily by looking at the following factors, though there could be additional ones imposed by specific merchant account providers.
  • Your personal credit history
  • The overall finances of your company
  • How many years you have been in business
  • What kind of merchant account history you already have (if any)
  • The type of business you are running or your MCC
Any of these could put your business into a higher risk category and that can put you off being able to get a regular merchant account.

Do You See the Payment Card?

If you don’t actually see the payment card that’s being used you may be considered a high risk business. This includes online businesses of all types, including subscription businesses, auctions and dating sites. It also includes home-based businesses. Even if you have real products but you have payment processing online you could fall into this category.

Are Large Chargebacks Considered Normal?

For those businesses that see a large number of chargebacks you are likely also considered high risk. These chargebacks could be for any reason as well, including bad batches of products, problems with the payment processing system or anything else. As a result, you could end up classified as a high risk merchant account even though the situation was temporary or not even your fault.

Where are You and Who Do You Serve?

If you’re located in certain areas of the world you could be considered a higher risk. If you sell products that are considered harmful or potentially harmful to reputation you are also likely to be classified as a high risk. The same is true of those involved in travel, telemarketing, bail bonds, online dating and adult products. Each of these types of businesses could be high risk.

Contribute Risk

What Else Could Contribute to Your Risk?

Financials and Account History

You want to make sure that you’re managing your accounts properly so that you don’t get listed as a high risk account in the future. You’ll want to make sure you get the type of account that your business needs but nothing more. And make sure that you are following along with any requirements that your service provider puts on you.

Length of Business History

If your business has been around for a while you’re going to be considered less of a risk. On the other hand, if you’re brand new you’re going to be considered a much higher risk. Keep sticking it out and you may be able to get yourself out of the category of high risk over time.

Designated High Risk

You could be considered high risk because you’re on a TMF or MTACH list for things like non-payment, fraud, high dollar custom products, high quantities of international transactions or processing misconduct. There are a lot of different things that could contribute to you being added to this type of list, so make sure you’re watching out for each of them and mitigating them when possible.

What’s the Rate?

When it comes to high risk merchant accounts you’ll often find a high setup fee or other fees associated with it. The problem is that the higher the risk you’re considered the higher the fees you could end up seeing. You’ll generally have fees that start around 3.5% and go up from there. In fact, you could see rates that are even higher than 10% if you’re considered one of the highest risk business types.

This includes businesses with other types of offshore merchant service providers or those who have extremely risky industries that they’re working in. It’s even possible for your rate to go above that 10% and for you to see additional charges for processing.

What to Do

Make sure you’re getting a merchant account that works for your business right now and that you’re working with us to create a plan that will help you reduce your risk, your costs and more, while giving you all of the features and services that you need to keep your business going and growing.