The Complete Guide to High-Risk Merchant Accounts

What is a High-Risk Merchant Account and Who Needs One?

If you are planning to accept credit cards in your online business, you will need a merchant account. Furthermore, if your business is deemed high risk, then you will need a high-risk merchant account. High-risk businesses may encounter more chargebacks than a low-risk business does. For example, travel companies often encounter many cancellations. So what exactly is a high-risk merchant account?

First, credit card processors have to be very careful with credit card transactions. Therefore, with a higher risk of chargebacks, you must pay more for merchant services. They use several factors to determine high-risk businesses. These include fraud issues or the possibility of many refunds. So if you fall into this category, you must apply for a high-risk merchant account. In basic terms, this is simply the bank’s way of dealing with the higher risk. But this is not to say you cannot set up a high-risk merchant account easily.

In fact, there are many high-risk payment processors to choose from. But they are more strict about offering their merchant services. Luckily, while the process to get one is a little more complicated, there are many benefits to a high-risk merchant account. Many low-risk businesses run into chargeback issues that force their merchant account to close. Ultimately, this results in downtime while they resolve the issue.

High-Risk VS Low-Risk Merchant Accounts

Before you apply for a merchant account, you need to check the category your business falls under. While some businesses obviously fall into the high-risk category, it is not always so easy to tell. Different merchant account providers have different ideas of what high-risk businesses are. And some of the businesses that make the list may surprise you.

The easiest way is to look at what determines a low-risk business. Low-risk merchants generally deal with less than $20,000 of credit card processing per month. Plus, you are low-risk if your average credit card processing amount is less than $500 per transaction. Anything above this falls into the high-risk credit card processing category. And your ratio of chargebacks to sales must remain low. For this reason, the country you operate in also determines if you are a high-risk business. EU countries, the USA, Australia, and Canada are all examples of low-risk countries.

And probably the most decisive thing that deems you to be a high or low-risk business, is your products. Trading in normal products is unlikely to deem you high risk. Consequently, if the credit card payments you receive are for weapons or adult entertainment, then your business is high-risk. Other factors depend on the individual merchant account providers. Having a previous history of bad credit may also put you in the high-risk category with some providers.

High-Risk Merchant Fees

High-risk credit card processing involves extra risk for the bank. Therefore they charge higher account fees for their merchant services. And most payment providers prefer a low-risk merchant as there is less chance of chargebacks or fraud. But that is not to say that high-risk payment providers will not do business with you. It just means high-risk merchants should prepare to pay more. And the terms of the contract may not be exactly what you wish for. The key thing is to know what the higher account fees for merchant services are, and why you’re paying them.

Setup Fees

Setup fees are likely to be one of the biggest expenses for high-risk merchant accounts. Therefore, it is imperative to read your contract carefully. First, make sure you understand what up-front fees you will face. Payment processors may reduce your setup fees in order to get you on board. But ask them if it includes things like registration with credit card providers. Visa and Mastercard charge for registration to enable credit card processing.

Early Termination Fee

If you need to end the contract with your payment processor early, you may have to pay an early termination fee. This fee is their way of recouping some of the expenses they will incur. Termination fees for high-risk merchant accounts can be expensive, so check your contract and see if there is a fee. The two most common ways to pay for ending merchant accounts are a flat fee or liquidated damages.

Discount Rates

One of the benefits of a high-risk merchant account is that your payment gateway can offer many payment options. The discount rate is a credit card processing fee incurred by a merchant account. It will depend on the customer’s card and your pricing model. A high-risk merchant account already has high fees, so it’s important to know exactly what you are paying for. It is a percentage of the cost of a transaction, so it depends on your product volume.

Longer Contracts

Many payment processing companies are competing to provide your high-risk merchant account. And you know high-risk payment providers charge more for their merchant services. So you can use this to your advantage and negotiate a better deal for taking a longer contract. But every business is different. Make sure you factor in an early termination fee if you are not sure that your business is sustainable.

Authorization Fees

While it’s all well and good to have many payment options at your payment gateway, you need to know your costs. There are many credit card processing stages, each with its own fee. You pay an authorization or transaction fee each time you run a credit card. It is the fee the issuing bank charges for its role in the transaction. While seemingly small, this fee can often be more than the discount rate.

Settlement Transaction Fees

One of the downsides to needing a high-risk merchant account is that you may have to wait to get paid. There are already more fees to pay than normal merchant accounts, and then you may have a rolling reserve. Settlement transactions are great for merchant accounts. The money is transferred directly from the customer’s account to the merchant’s account. But it is worth checking what settlement transaction fees you will incur.

Chargeback Fees

Chargeback fees protect customers who are unhappy with their purchases. And with a high-risk payment, you are more likely to encounter this problem. And if your business will have many chargebacks, the bank may put a rolling reserve on your account. Basically, they will hold back a percentage of your income to pay for refunds. And this can add up since it will happen each time they provide credit card processing. But you can dispute chargeback claims. Be sure to choose a payment processor with excellent customer support to assist you.

Penalty Fees

When you set up your payment gateway, you may have plans to make a certain number of sales per month. But an online business can expand quickly. Therefore, look for a payment processor that offers unlimited transaction volume. If you agree on a preset limit with your payment processing company, and later go over that limit, you may encounter a penalty fee.

How to Pick the Right High Risk Merchant Provider

High-risk industries have a lot more to think about than low-risk merchants. First, with high-risk credit card processing, you have greater PCI compliance to deal with. Next, chargebacks and fraud can be difficult to deal with, so good customer support is vital. And different payment gateways may need different processing solutions. With all these issues in mind, choosing the right high-risk merchant account can seem a daunting task. The good news is there are many merchant account providers. So high-risk merchants have many choices.

Transparent contractual terms – Reputation of the Service Provider

Finding the right high-risk merchant account provider involves a lot of transparency. With this in mind, you should be upfront with the merchant account providers so they know where they stand with you. Explain your credit history and previous processing history. And be clear about what products you will sell. That way they can prepare a proper contract with the correct account fees. With high-risk merchant accounts, you will need good customer support if things go wrong. Finally, once you get your contract, everything should be transparent, with no hidden costs or fees.

Variety of Payment Options

One of the main benefits of a high-risk merchant account is having many payment processing options. High-risk merchants should be able to accept transactions in multiple currencies. Your payment gateways should offer more diverse payment processing and payment methods. And look for a provider whose payment gateways are available in different languages. A high-risk merchant account lets you expand into countries outside of the low-risk payment processing category. Make sure your merchant account provider offers this service, so you get the most out of being a high-risk business.

Fraud Prevention

There can be several reasons you need a high-risk merchant account. One of the main reasons is the likelihood of fraudulent transactions. You may be dealing with high-risk accounts from countries deemed outside of the low-risk zones. Therefore, you need to protect yourself and your merchant accounts from fraud. Make sure your credit card processor can deal with the countries you will work in. And payment processors should take a multilayered approach to security. They should have anti-fraud tools in place, and prompt customer support when you need it.

Chargeback Help

One of the toughest things your high-risk merchant account may have to deal with is chargebacks. Too many of them, and the bank may freeze your merchant accounts. And, once a customer initiates a chargeback, you are going to pay the fees. Even if you win the dispute later, the bank will not return the cost. You already pay extra fees for a high-risk merchant account. So be sure to choose a provider that helps lower your chargeback rate, so you save on fees. A good credit card processor should offer adequate customer support to help you with issues.

PCI Compliance

Part of the cost for getting a high-risk merchant account may include PCI compliance. But payment processors have different approaches depending on your contract. First, not all providers include the cost in their contract, and some may even offer it for free. And, depending on your payment gateway, you may be the one responsible for the majority of it. Others may offer you PCI compliance services and charge you a monthly fee. This is the most common approach, so check to make sure what your provider offers.

High-Risk Industries

How to apply for a high-risk merchant account

When it comes to the application process, applying for a high-risk merchant account is quite easy. First, choose a high-risk payment processor that accepts your type of business. Next, visit their website and fill out their application online. Be honest with all the answers on your application. Remember, a payment processor is an expert in obtaining merchant accounts. If at all possible, they will find a bank to suit your needs, and get the approval for your high-risk merchant account. But only if you are upfront with all your details.

There are several documents and certificates you should prepare in advance before applying. First, include a certificate of incorporation or registration. This certifies that your company is registered to trade. Next, include a chart with the company structure, and the shareholder’s share certificates. Include a copy of their passports or driving licenses and residential addresses. If possible, include 3 to 6 months of financial statements. This should have bank statements, tax returns, and any other processing statements.

This will help the payment processor choose the best bank for your needs. If your company has any merchant accounts, then include this information too. Also, include any chargebacks you have had in the past. If you have already been trading, then show the volume you sold. Also, getting a high-risk merchant account also depends on your previous credit card processing history. So the more information you provide the better.

Top High Risk Merchant Providers

While the idea of getting a high-risk merchant account may seem daunting, there are many providers waiting to help you. They make the application process easy and fast. You can usually apply online in a matter of minutes and receive a quote just as quickly. If they accept you, they will let you know what documents they require. It is worth remembering that high-risk merchant providers want your business. As long as you are honest with them, they will do all they can to help you obtain a merchant account. These are our top 5 high-risk merchant account providers in 2021.

PaymentCloud

PaymentCloud is a specialist in merchant accounts. Handling small high-risk businesses as well as Fortune 500 enterprises, they have seamless integration with most shopping cart platforms and websites. They offer great customer support and are widely regarded as one of the best high-risk merchant account providers. There are no application fees, which makes them a great company to start your application process with. With a 98% approval rating, all high-risk businesses have a good chance of getting a high-risk merchant account here. Once accepted, they have no set-up fees and provide a free payment gateway setup.

Durango Merchant Services

Durango is an expert in high-risk credit card processing. Offering transparent pricing, they have a quick approval process. With over 20 years of experience dealing with merchant accounts, they provide amazing customer service. In fact, when you apply for a high-risk merchant account, they give you a direct phone number to an account manager. That way you get all your questions answered efficiently and professionally. They specialize in chargeback prevention and fraud protection. And, their EMV 3D Secure 2.0 security adds an additional layer of security for transactions.

CCBill

CCBill has over 20 years of experience dealing with high-risk industries. They are one of the leaders in fraud protection and content compliance. Renowned for their customer support, they specialize in high-risk merchant accounts. They offer proactive regulatory management and active risk mitigation. CCBill’s Merchant Connect Network helps you find other companies using their services. This helps you to find other companies and create partnerships to help drive sales to your site. Accepting most international currencies and languages, they help you deal in international markets.

Square

Square are probably the best all-purpose merchant service for a low-risk business. They offer solutions for credit card processing without a merchant account if your sales volume is low. Basically, they group businesses together and create shared merchant accounts. While they do not normally offer high-risk merchant accounts, there are still some cases where they will accept the risk. But, if they deem you to be a high-risk business on application, they will probably not deal with you. They do support a worldwide payment network, however, with eCheck/ACH processing networks.

Soar Payments

Soar payments are one of the top providers for getting a high-risk merchant account. They offer very fair and transparent pricing. And once you complete their online application process, you receive an instant quote. Their payment gateways integrate easily with most shopping cart platforms. So they are fast and easy to get set up with. They offer a high-risk merchant account for a wide range of high-risk industries. However, they only provide merchant services for companies inside the US. They will not provide merchant services for foreign or offshore businesses.

Conclusion

There are many reasons you might need a high-risk merchant account. And different providers have different ideas of exactly what high-risk businesses are. But, while a high-risk merchant account will cost you more in the long run, there are many benefits to having one. If you are likely to face a lot of chargebacks or deal in high-risk products, the extra costs are definitely worth it. And luckily, there are many providers to choose from. With so many providers looking for your business, there is also a lot of room to negotiate.

Consequently, you can get more reasonable rates and contracts as your business grows. Banks often freeze merchant accounts if your business runs into issues. With a high-risk merchant account, that is exactly what you’re paying them for. To be there for you if your business runs into issues with its payment processing.

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