5 Things to Know About High-Risk Merchant Accounts
Finance 113

5 Things to Know About High-Risk Merchant Accounts

5 Things to Know About High-Risk Merchant Accounts

You might run a business, and if so, then you’ll have some banking needs. However, maybe you have a company that banks consider to be high-risk for one reason or another. If so, then it might be challenging for you to open up an ordinary account.

That is why you need to learn about high-risk merchant accounts. Once you know about them and how they work, you can think about whether this might be a suitable solution.

What Exactly is a High-Risk Merchant Account?

High-risk payment processing is something that not every business needs. For instance, if you’re opening up a bakery, that’s hardly going to put you in this category. You might need a high-risk merchant account if you’re in:

 The adult entertainment industry
 The online gambling business
 Vape shops or e-cigarette sales

For better or worse, some banks consider these industries to be less legit than others. With a high-risk merchant account, you can do payment processing. You may get hit with more chargebacks, and a bank willing to give you one of these accounts understands that risk.

Because of this, you have to pay the bank higher transaction fees.

There Are Usually Criteria for Low and High-Risk Merchants Banks often have criteria in place to determine whether your business is low or high risk. A high-risk client will often:

 Have an average credit card transaction higher than $500
 Will have excessive chargebacks and a bad credit history
 Will have more than $20,000 in monthly sales

Apart from that, this business type might sell services or products to countries known for high fraud levels. Contrasting this would be a more “legit” or traditional business model. That would involve a zero or low chargeback ratio, lower average credit card transactions, and less than $20,000 in monthly sales.

Who Often Gets One of These Accounts?

We’ve already mentioned entities like gambling, the adult entertainment industry, etc., but there are some other candidates. Those might include antique or art sellers. Attorney referral services might be a possibility.

Banks may consider car parts sellers, automotive brokers, and various “business opportunities” to be high-risk. They will also recommend high-risk merchant accounts for bars, nightclubs, phone locking services, pawnshops, some real estate enterprises, SEO services, and replica handbags, sunglasses, wallets, etc.

It’s rare that a bank will completely turn a potential client away, even if it feels that their business model is shaky or less than reputable. The bank still wants their business. They’ll just steer them toward a high-risk merchant account.

The Fee Structure

Banks don’t judge businesses or business models. That’s not their job. If you can show that your company is making a profit, then a bank will likely still want to do business with you.

They’re going to charge you higher fees, though, and often, you have little alternative but to pay them. You can certainly look around for the best rates, but they’re going to be higher across the board if you have one of the businesses that we mentioned.

You might find yourself paying 15% commission fees for many transactions. The same goes for various extra costs. That might seem exorbitant, but you need somewhere to put your money, and if not a bank, you won’t feel very safe sticking it all under your mattress.

There are also various high-risk payment providers, aside from banks. They might have you sign a contract for one, two, or three years at a time. If you terminate the agreement early, they will charge you an extra fee.

They also make their money off you from a setup fee and monthly and annual fees.

How Do I Apply?

If you feel like a high-risk merchant account is your best option, you’ll need to bring some things to the initial meeting. You’ll need:

 A shareholder’s certificate
 An incorporation certificate
 An organizational structure chart listing all your shareholders

You may also need processing history going back several months. That will include your chargeback percentage, total volume, and transaction numbers.

You must have a license number and organizational name that issued the license if you run a business that legally needs one.

You might feel that it’s an onerous process setting up the account, especially with the fees that go with it. What you have to remember is that a bank is the most solid institution through which you can go.

You can also seek out another high-risk payment provider. Find one that’s reliable and has a fee structure you can accept.

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Finance 113