Why do we charge a Set-Up fee?
What Factors Qualify a Merchant Account as High Risk?
When it comes to merchant accounts and the risk you pose to payment processors, there are some risks that make your business stand out. Any one of the following could identify your business as a greater risk.
Businesses that Never Actually See the Card
This includes online business, home-based businesses, online dating sites, online auctions, and a variety of other businesses conducted over the world wide web. Even businesses that offer real products but manage the payment processing for the products online.
Reputation for Abundant Chargebacks
If you’ve experienced a huge number of chargebacks in the past, whether by mistakes made in the payment processing, a bad batch of products, or any number of other possible reasons, you could find that you’ve been identified as a high-risk merchant account and need to work a little harder to prove yourself in the future.
Industry, Location, and Clientele
Some industries represent a greater risk than others. Some from the nature of the business and others based solely on the reputation of the business. For instance, stores that offer adult products are just as likely to be rated as high-risk enterprises as those who deal with firearms. The same holds true for travel services, telemarketers, bail bonds businesses, online auctions, and dating websites.
Other factors that increase the risk
Company Financials and Merchant Account History
The other thing you need to do to avoid being listed as a high-risk merchant account in the future is to manage your account wisely today. This means avoid getting an account that provides more services than your business needs at the moment and staying up to date with all requirements of the merchant service provider you’re currently working with.
How Long You’ve Been in Business
This is one that has a greater impact than many business owners realize. Newer businesses often need to prove themselves before they’ll receive preferred rates and status designations from payment processors and other merchant services providers. The longer you’re in business, the less risk many providers feel you pose.
Other High-Risk Designations
Not all high-risk businesses are considered high risk because of their industry. In addition to particular industries, individual businesses may be considered high risk for factors including: poor personal credit; inclusion on the Terminated Merchant File (TMF or MATCH list) for processing misconduct, non-payment, or fraud; high dollar value transactions with no business history; high dollar custom products; large number of international transactions.
Rates for High Risk Merchant Accounts
High Risk Merchant Accounts are most of the times subjected to a setup fee . The higher the risk associated with your industry, the higher the fees and charges for credit card processing.
Various factors define the risk associated to your business like Industry, Location, Processing History, Processing volumes and Clientele. For instance, stores that offer adult products are just as likely to be rated as high risk enterprises as those who deal firearms. The same holds true for travel services, telemarketers, bail bonds businesses, online auctions, and dating websites.
Businesses that are placed in the Terminated Merchant File (TMF), also sometimes called the MATCH list, will also be considered high risk.
Keeping in mind that the actual rates and fees you’ll pay depend on a number of factors, high risk businesses should expect credit card processing fees to start around 3.5% for an established business in a “less risky” high risk category. From there, costs can rise to 10% or more, with the highest rates coming for those in the riskiest industries or businesses using “offshore” merchant service providers.
If you opt for an offshore payment processing solution, there may be a cost associated for new company incorporation in the country where your processing bank is based or setting up a new bank account. Many times the acquiring banks want collaterals or security deposits which may be a percentage of your monthly or yearly processing volumes.
High Risk MCCs
When you open a merchant account, you’ll be assigned a merchant category code (MCC) classifying your business. Many businesses ask if there’s a list of high risk MCCs. While there’s no single conclusive list, high risk processors will each maintain their own list of businesses that they deem to be high risk. When considering processors, you can ask directly if they can support your business type before filling out an application. It’s not necessary to know your current (or expected) MCC before opening a merchant account; your processor will assign it to you.
That said, Visa and Mastercard both publish lists of MCCs that they class as high risk. American Express and Discover do not publish lists but offer other information.
Subject to change, Visa outlines high risk MCCs in its Rules, as follows:
- 5962 (Direct Marketing – Travel-Related Arrangement Services)
- 5966 (Direct Marketing – Outbound Telemarketing Merchants)
- 5967 (Direct Marketing – Inbound Telemarketing Merchants)
- 7995 (Betting, including Lottery Tickets, Casino Gaming Chips, Off-Track Betting, and Wagers at Race Tracks)
- 5912 (Drug Stores, Pharmacies)
- 5122 (Drugs, Drug Proprietaries, Druggist Sundries)
- 5993 (Cigar Stores and Stands – for merchants that sell cigarettes in a card-absent environment)
Visa requires registration for the high-risk MCCs noted above. Your processor will need to register you as a high-risk business before you can accept Visa cards. Visa charges the processor for registration, but the processor will pass that cost on to you.
Visa registration costs $500 upfront and $500 to renew each year.
Registration doesn’t apply to MCC 5993. It may also not apply to 5912 and 5122 if your business is accredited by the National Association of Boards of Pharmacy or another Visa-recognized legal regulatory body. Note that Visa does not require registration (and the associated fees) if you run a high-risk business that is deemed high-risk by your processor but is not on Visa’s list.
Mastercard doesn’t publish a readily-available list of MCCs that it deems high risk. However, high risk processor CCBill’s website specifies that Mastercard considers high risk to include “downloadable, digital merchandise” sales, as well as MCCs:
- 5967 (Direct Marketing – Inbound Telemarketing Merchants)
- 7841 (Adult Video Stores)
- 7994 (Video Games and Arcades)
- 7995 (Gambling)
As with Visa, this is not an exhaustive list of all Mastercard high risk businesses. According to CCBill, Mastercard’s registration fees are the same as Visa’s – $500 upfront and $500 per year to renew.
If you choose to take both Visa and Mastercard and have an MCC that requires card brand registration, you’ll pay $1,000 per year for registration with the two companies. That registration fee is not in your processor’s control and is in addition to the per-transaction rates and fees. Processors will set pricing and terms on a case-by-case business, reviewing the details of your individual needs.