What is a High Risk Merchant Account?

Feeling baffled about why your business is labeled ‘high-risk’ and why this means you need a high-risk merchant account? You’re definitely not in the minority here.

What Exactly is a High-Risk Merchant Account?

It’s a common misconception that high-risk businesses are inherently shady or risky. Surprisingly, even something as innocuous as selling furniture can flag your business as high-risk. Once labeled as such, banks and payment processors mandate a high-risk merchant account for processing payments.

Finding out your business is high-risk can be startling, and the fear of not securing a merchant account is real. But being high-risk doesn’t mean you can’t get a merchant account; it just means you need a provider skilled in this area, with the right banking connections.

Let’s unravel what makes a business high-risk, what it means for your business, and how to find a trustworthy high-risk merchant service provider.

The Criteria for High-Risk Status

Banks and payment processors assess businesses based on several risk factors, including:

  • High chargeback ratios
  • Potential for fraud or actual fraud history
  • Brand damage concerns
  • Heavy regulation or lack thereof
  • Business stability and creditworthiness
  • Selling high-ticket items

Chargebacks are a prime concern; they’re costly for both banks and merchants. Visa and MasterCard have set chargeback thresholds, and exceeding these can lead to penalties and mandatory enrollment in monitoring programs.

Some industries naturally attract more chargebacks or fraud, such as online gaming or drop-shipping. Banks also need to consider their reputation, leading them to shy away from certain sectors like adult content, tobacco, or firearms.

Regulatory landscape plays a significant role too. For instance, businesses selling CBD oil or supplements face complex regulations, adding to their risk profile. Similarly, the financial stability and credit history of the business owner can influence the high-risk designation.

What Does Having a High-Risk Merchant Account Mean?

A high-risk merchant account is a way for banks to balance the increased risk they take on. These accounts come with more stringent underwriting, higher fees, and potentially, reserve requirements.

Getting approved for a high-risk account can be more complex and time-consuming, and the cost of processing payments will be higher than for low-risk businesses. This is because high-risk providers invest more in fraud prevention and risk management.

Finding the Right High-Risk Merchant Account Provider

When looking for a high-risk merchant account provider, avoid the scattergun approach of applying to many at once, as this can raise red flags. Instead, focus on finding a provider with experience in high-risk accounts, solid banking relationships, and a transparent approach.

Questions to ask include their experience in the high-risk sector, their banking partners, and whether they are ETA Certified. An experienced provider can guide you through the approval process and help you establish Best Practices for a smooth experience.

If you’re in need of specialized high-risk merchant services, consider Bankcard International Group. We specialize in providing stable, high-risk merchant accounts tailored to the specific needs of your business, with competitive rates and expert guidance.

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