Understanding High-Risk Merchant Accounts

Friday, September 14th, 2018

As a merchant in today’s increasingly competitive business world, the ability to process credit card payments can make all the difference between long-term success and premature failure. If yours is a high-risk enterprise, however, this valuable privilege won’t come easy. Payment processors typically prefer to deal with merchants that present as minimal risk as possible, and consequently, most of them will be hesitant to lend you their services.

If you’re finding it hard to acquire a merchant account from your bank due to the nature of your business, you may want to try your luck with a high-risk provider.

What Are High-Risk Merchant Accounts?

All payment processors have their ways of determining whether or not a business is high-risk, but ideally, merchants that operate locally, have high credit scores, sell low-risk products or services, and fit well with the community find it reasonably straightforward to acquire credit card processing services. On the other hand, if you run an Internet-based business, have poor credit, or are in an industry that is renowned for its numerous risks, you will need to apply for a high-risk merchant account.

A High-risk merchant account functions like a regular account in that it gives a merchant a line of credit that enables them to receive funds immediately after a sale, after which the provider retrieves the equivalent amount from the customer’s bank account. However, if something happens to reverse the transaction, say, the filing of a chargeback, the merchant account provider is obliged to reimburse the buyer.

High-risk merchant account providers are named so because of their willfulness to service businesses that are significantly more likely to lose them money. These processors take up the merchant’s risks, be they fraud, chargebacks or bankruptcy, as their own, and are often ready to suffer the consequences of disputed sales or the failure of the business.

Getting A High-Risk Merchant Account

If you own a high-risk business, signing up for a high-risk merchant account will enable you to give your customers all the payment options they may want, while avoiding the stringent underwriting process that is common with conventional account providers.

That said, even high-risk credit card processors have their guidelines. For instance, most companies will be more inclined to partner with businesses that have a decent number of sales and will likely insist that you prove you can rake in a set amount of revenue in daily, weekly, or monthly transactions. Substantial numbers will help to convince a processor that you will be able to sustain the cash-flow required to meet your commitments.

A provider will also consider the background of your business and will be eager to work with you if you’ve been in successful operation for at least one year. On the flip side, factors like poor credit, a history of criminal activity, or blacklist or bankruptcy reports will reduce the confidence a processor will have on you, and as a result, drive your payment processing fees up to the roof.

The takeaway here is that the further you drift from a processor’s comfort zone, the harder and more expensive it will be to acquire a merchant account. Nevertheless, if you find a competent, reliable high-risk account provider, you will have little reason to worry about processing rates or the quality of the services they offer.