High-risk merchant account — what it is and how it works

In the event that you run an internet business with an increased threat of chargebacks and want to process mastercard transactions, you need a high-risk merchant account. But exactly what is a high-risk merchant account and how will you know you will need one?

To open a high-risk merchant account you will need to find an acquiring bank that will underwrite your business. However, to increase your likelihood of getting a merchant account it’s easier to ask a reliable payment service provider for assistance.

But first things first.
A high-risk merchant account is a payment processing account for businesses regarded as of risky to the banks. As high-risk companies are more susceptible to chargebacks, they include the necessity for paying higher fees for merchant services.
In case a business includes a high potential of chargebacks, or the annals shows many chargebacks and refunds, the lender may put a rolling reserve on your account. It’s the money that will cover the opportunity of chargebacks or fraud.

What exactly are the dissimilarities between low-risk and high-risk merchant accounts?
Before you apply for a merchant account, it’s good to learn whether you’re a high-risk merchant or a low-risk one. Merchant account providers have their standards for categorizing businesses in conditions with their potential risk, but there are several things characteristics for both groups of merchants.

So, what are the differences between low-risk and high-risk merchant account?

What is a low-risk merchant?
Remember that every payment processor has its own group of guidelines, but there are a few characteristics common for all the players on the marketplace.

General indicators for low-risk merchants will be the following (but there are a great many other factors, and it’s based on compliance’s general evaluation):

Less than $20,000 processed monthly
Average charge card transaction is significantly less than $500
The industry a merchant operates in is known as low risk (they are, for instance, low risk-clothes and shoes, household goods, baby products)
Zero to low chargeback ratio
The country a company operates in is considered low risk (EU countries, USA, Canada, Australia, Japan)
Minimized returns.
Exactly what is a high-risk merchant?
A lot more chargebacks a company comes with, the higher the chance. Hence, the key factors that matter are industry reputation and processing history (it’s recommended to keep your chargeback ratio less than 0.9% of your total transactions).

Listed below are overall characteristics of a higher risk merchant, but note that it widely differs based on a certain payment processor’s guideline:

A lot more than $20,000 monthly sales volume
Average mastercard transaction greater than $500
A company sells products and services to countries known for high degrees of fraud
Bad credit score and excessive chargebacks.
Who requires a high-risk merchant account?
A good example of high-risk businesses is the travel industry, as there are many factors there that can cause cancellations. This usually eventually ends up with a number of refunds and customers who file chargebacks. Some others are gambling, forex currency trading, and adult-themed websites, to mention a few.

There are a great many other industries or business models that are inclined to chargebacks, so here’s the set of the most frequent types of businesses that require risky merchant accounts.
So, if you operate a business in the industries mentioned previously and similar, you need a high-risk merchant account to accept credit card payments on your website. If you’re a high-risk merchant, you will need to cope with higher costs of merchant account than regular merchants.

High-risk merchant account fees
Talking about fees, the harsh reality is that high-risk merchant accounts cost more than makes up about low-risk businesses. A couple of inevitable costs you need to face, so you need to get ready to pay more in processing charges and account fees.

But you must be aware that high fees for high-risk merchant accounts were set as a standard a long time ago now you will get payment processors that provide competitive rates tailored to your business. 15% commission rate or even higher fees adhere to the dated approach. You don’t have to be stuck in long contracts running 3 to 5 years. A similar applies to extra costs.
Several high-risk payment providers still may ask you for a setup fee, monthly and gross annual fee, or perhaps a PCI fee, so browse the contract properly. Furthermore, an early on termination payment may apply when you wish to close the account before the date on the contract. The details regarding the termination fee should be contained in the contract, so be sure to learn it carefully before you sign the agreement.

The payment processing industry is moving forward, so look for high-risk payment processors that ask you for limited to transactions that happen on your website or in the app.

A rolling reserve for high-risk merchants

Another expense characteristic for a high-risk merchant account is a rolling reserve. It really is yet another layer of protection for the lender against chargebacks or unexpected activities (such as fraud cases) working for you. So, a certain area of the credit-based card processed volume is secured (usually 5-10%), and it depends on the business enterprise model and processed volume. It’s kept on hold for a precise period, usually up to six months, and after this time reserve is released.

The higher the chance that the business enterprise comes with, the higher the rolling reserve is calculated by the acquiring bank. Following the given time, the money is released and automatically settled in one of your weekly statements.

Remember that the rolling reserve can be wanted to low-risk merchants that are just starting and also have no credit history.

Chargeback fees

Also, remember about chargeback fees which may apply whenever a cardholder files for a chargeback and asks the lender to dispute the charge. It’s the money that covers the administrative costs of processing the chargeback.
Overall, high-risk merchant account fees may cost you doubly much of the total amount that pertains to low-risk merchants. But, if you operate a business that processes numerous daily transactions, you can negotiate rates with a payment processor.

How do you obtain a high-risk merchant account?
To get a high-risk merchant account, you will need to submit an application online. Naturally, to simply accept card payments additionally you need to discover a reliable high-risk payment processor.

The process of trying to get a high-risk merchant account is short and simple. For instance, if you select SecurionPay as your payment partner, we can help you find a bank that matches your business needs. Once your business is approved by the acquiring bank, you could start processing payments online or mobile.

Here’s what you should prepare before you obtain a high-risk merchant account:

Incorporation certificate
shareholders’ certificate
organizational structure chart (Shareholders)
copy of your passport and domestic bill of local directors and shareholders holding more than 15%
incorporation certificate and shareholder certificate of other businesses in case of being truly a shareholder
processing history going back 6 months (total volume, quantity of transactions, chargeback percentage)
test user credentials with premium usage of the platform
the license number and name of the business that issued the license (if you operate a business that requires a license).