Nowadays, accepting credit card and debit card payments have been part of the normal norm of business establishments today. It is an alternative to using cash payments. To be able to accept electronic payments a business must obtain a merchant account from a payment processor. But if your business falls on the ‘high risk’, you may find it very hard to open one.A high risk merchant service providers serves all high risk industries. iPayTotal delivers payment solutions and products to help grow your business. Processing thousands of credit and debit transactions per day, we make the process of opening a merchant account easy and affordable. Our high risk merchant accounts allow you to accept all major credit and debit cards. Our MOTO payment gateway allows accepting transactions on phone.
Let us explain to you briefly about high risk merchant, what it means to be one and how to get a merchant account even if it seems impossible to get one. A high risk merchant service providers serves all high risk industries.
What is a High Risk Merchant Account?
A high risk merchant account is for the business or an industry that has a very high rate of chargebacks and fraud that their legality is doubted and is considered risky by the financial institution.
Accepting credit card payments entails the cost. Major card networks like Visa, MasterCard, Discover and American Express charge interchange fees to use their network and the Merchant Service Provider charge processing fees to connect the card issuing bank to the acquiring bank via payment processors.
It is the merchant account provider and the payment processor assumes the majority of the risk associated with the transaction and with that they charge additional fees other than the interchange fees that are being charged by the card networks. They try to minimize the risk by imposing higher premiums on merchant accounts that they find risky.
How do I know if I’m a High-Risk Merchant?
Merchant service providers determine business level by assessing the following
1. Personal credit history
2. Financials of the company
3. Number of years in business
4. Merchant account history if applicable – This is a must for those with the previous merchant account. The history of chargeback and the blacklisted on the match list or what they call terminated merchant file.
5. Type of business or merchant category code
When a business owner applies for a merchant account the process of assessment is like when applying for a loan, the associated risk with adding the merchant account to their portfolio will be estimated. Also, the type of business a business owner have provides them an idea of the amount of risk associated and these affect the rates they will charge your business per credit card transaction.
What is considered a High-Risk Business?
Some industries and business types are automatically flagged for high-risk credit card processing. These are the following:
a. Pharmaceuticals – Controlled substances like drugs and medications can potentially hurt once abused and misused. Those businesses in the cannabis industry faces the same problem when dealing with merchant accounts provider. Although legalization of the medicinal and recreational use of marijuana has been started already in some states, financial institutions still consider this type of industry as high risk merchant service.
b. International business – There is an increase in the likelihood of fraud when one business goes overseas. For example, if the company’s headquarters are overseas with an offshore merchant account but the majority of the customers they are dealing with are in the U.S. these can be seen as dubious and might raise some red flags.
c. Gaming – This is an industry that has very high instances of fraud as well as chargebacks.
d. Firearms – There is a large problem of fraud and legal matter issues as well as the risk just by association with the business handling firearms due to the stigma of guns and ownership of them.
e. Adult entertainment – It is very hard to find a merchant account for adult contents – from pornography business to dating websites.A high risk merchant service providers serves all high risk industries.
f. Travel industry –Hotels and travel agencies are also considered as high-risk merchant accounts due to the huge number of chargeback.
g. Network Marketing – Pyramid marketing schemes or multi-level marketing products are often perceived as a scam and also has a high rate of chargeback.
h. All card-not-present transactions – When the transaction happens when the card is not physically present or what we call now as e-commerce transactions are also flagged as high –risk because of the possible attacks of fraud inhigh risk merchant service.
i. High-volume transactions – Voluminous credit card transactions also increase the risk because of the increase in the possibility of chargeback that is why a merchant that process many transactions is considered as high risk.
j. High average ticket amount – If the average ticket size is hundreds or even thousands of dollars, this can also be regarded as a risky investment by high risk merchant service providers.
I’m a High Risk Merchant, What are My Options?
If your business is under one of the high risk industry categories it is still possible to obtain a merchant account with a high risk merchant service processor But expect your rates and terms of the contract to be higher and less desirable than those in low-risk levels from one to two percent more per transaction. Also, a reserve may also be required.
There are merchant service providers who specialize in handling high-risk merchant accounts. As there had been a move to legalize online gambling and the cannabis industry for sure there will be more high-risk account providers that will open and cater to them.
There are different types of reserve that can be required by these merchant service providers.
- A rolling reserve which is a risk management strategy that the acquiring bank uses to protect themselves from possible fraud, chargeback or other incidents where they may lose money. This serves as a buffer or insurance on the high-risk nature of your business. It is done by withholding a percentage of daily revenue depended on the merchant agreement in high risk merchant service.
- An up-front reserve is required especially when the business is new. An up-front amount of money is required at the start of the merchant agreement that is based on the expected transaction volume.
- A capped or fixed reserve is when the acquirer is withholding a percentage of every transaction until he reaches the cap agreed in the merchant agreement.
To find out more about IPAYTOTAL’s merchant services, Give us a call at +44 800 776 5988 or get in touch with us through our website. Even if you’re not a customer of ours, we want to help you understand the process so you can make the best decisions for your business. We believe transparency and proactive education is the best policy.