Understanding High Risk Merchant Accounts

understanding high risk merchant accounts

For anyone out there that runs an online / ecommerce business that has the high potential for chargebacks but wants to be able to process credit cards, then they will need to open what is known as a high risk merchant account. However, for those businesses that have never had to do this before, they may ask what exactly is a high risk merchant account and how do you determine if you need one or not? 

In order to be able to use high risk merchant services, these types of businesses must first open a high risk merchant account with a financial institute or bank that is willing to underwrite them. In order to boost their chance of being accepted for an account, it is beneficial to go with a service provider that is highly reliable. 

What Exactly Are High Risk Merchant Accounts? 

These accounts are used for the purpose of payment processing and are used by those businesses that are deemed to be high risk according to financial institutions and banks. This is because high risk businesses are more likely to have chargebacks and so there is the need to pay much higher fees for these types of services. 

Where a business has the potential for incurring lots of chargebacks or have a history of them or refunds, then it is likely to be the case that a financial institution or bank will place something known as a rolling reserve onto their account. This is a sum of money that, if needed, will cover any fraud or chargebacks that happen. 

High Risk Merchant Account Fees 

The fees that are associated with high risk merchant accounts are much greater than those associated with the accounts used by what are deemed to be low risk businesses. This is unfortunately an inevitable risk of running a high risk business, so they need to be prepared for paying much more in account fees, as well as processing charges. 

The fees that are in place for high risk merchant accounts have been put in place some number of years ago, although nowadays you are able to find processors of payments that provide tailored rates that are highly competitive for any high risk business

There is typically the requirement to pay a setup fee which is put in place by the financial institution or bank. There may also be the need to pay a PCI file, an annual fee, and even monthly fees. It is important to read the contract properly in order to be aware of the finer details of the account. When closing down a high risk merchant account, there may be some sort of termination fee to pay. 

Other expenses that businesses face with high risk merchant accounts include the following things: 

• Chargeback Fees - whenever a chargeback is filed for, then there are fees that must be paid for this. These fees cover the cost of administrators having to process each individual chargeback. 

• Rolling Reserves - this acts as an extra level of protection for the financial institute or bank for cases of fraud and chargebacks experienced by a business. As a result of this, a certain proportion of the credit card transactions that are processed on behalf of a business are secured. This is typically somewhere between 5 percent and 10 percent. However, a reserve is not permanent and will only be in place for a time of around 6 months before being released. The more high risk that a business is deemed to be, the higher that the rolling reserve is. Even some businesses that are deemed to be low risk may be subject to rolling reeves, this is especially true of those just starting out. 

In comparison to normal merchant accounts that are considered to be low risk then the fees can be much more expensive - twice as expensive in some instances. However, where a business processes a large number of transactions on a daily basis, they can work with the financial institute or bank to negotiate the rates charged. 

The Benefits Of High Risk Merchant Accounts 

Whilst there is the obvious disadvantage of being subject to much higher fees, there are actually some benefits. These are listed below and include the following: 

• Improved Profits - because a business has a much wider range of products that it is able to sell, it increases the chances of making more sales and thus improving profits. 

• Business Growth - the opportunity for business growth is available due to the fact that a business with a high risk merchant account is able to sell some certain products that they could not with a normal (low risk) account. For those businesses interested in growing, they should check out the full service digital marketing agency SERP

• Protection From Chargebacks - the account should be easier to keep in good shape thanks to this protection that exists. When a normal account experiences too many chargebacks then there is the chance that the account will be terminated. This is never the case with high risk merchant accounts. 

• World Wide Coverage - with a high risk merchant account, a business can accept payments from foreign countries from throughout the world thanks to being able to sell on a world wide scale. Because of this, businesses have access to a much bigger market. 

What To Look For In High Risk Merchant Accounts 

Because there are so many financial institutions and banks out there that offer high risk merchant accounts, it can be a difficult task deciding on which one to go for. Some of the things that need to be considered during the decision making process include some of the following: 

• Security - it is important that whoever is providing the high risk merchant account follows all of the rules that are in place and has tools in place to prevent fraud from happening. 

• Clear Pricing - the cost and fees associated with an account should be clearly visible and easy to understand. 

• Customer Support - it is important to have someone there to help you for when any problems arise.

Keep these tips in mind when working with high risk merchant accounts!

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