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To thrive in this digital world, businesses need to accept payments through credit cards. The work of processing these credit card transactions is of a merchant service provider, and the payment processor classifies merchants into two categories based on the risk associated with their business: low-risk merchants and high-risk merchants.
The companies that have a higher degree of risk related to their business need a high-risk merchant account. Let us dive deeper to understand what to expect when a merchant opens a high-risk merchant services account.
Benefits of Having a High-Risk Merchant Account
Opening a high-risk account requires going through extra scrutiny and additional fees. It is more complex than opening a traditional account, but despite all this, it offers several benefits such as:
- Global Coverage
Gain access to larger markets by accepting payments in multiple currencies from customers living in other countries. With high risk merchant services, you can grow your business even overseas.
- Lower Chance of Account Termination
A high risk merchant service account helps to reduce the risk of account termination due to temporary higher chargebacks or a sudden increase in the volume of transactions compared to standard merchant accounts.
- High Chargeback Protection
The high risk merchant services provider can help you in implementing security measures like EMV, 3D secure to protect you from a chargeback.
- Expanding Business
With a low-risk merchant account, you cannot sell products and services classified as high-risk, but you can sell products and services that belong to the high-risk category if you have a high-risk merchant account. It gives you more opportunities to grow.
- Absent Volume Caps
There are no limits on target volume per month, and businesses operating in the high-risk category can conduct as many credit card transactions as they want to as compared to traditional accounts.
- Increased Profits
Since high-risk category businesses can sell more products and there is no limit on the number of transactions or currencies they can accept, they can earn more profits.
Cons Of Having A High-Risk Merchant Account vs Normal Account
High-risk accounts come with certain limitations. Let us look:
- High Transaction Fee
High-risk merchant accounts have higher transaction fees and processing rates as compared to traditional ones.
- High Set Up Fees
To set up a high risk merchant services account, a merchant is required to pay a higher set-up fee.
- Rolling Reserve
A part of the merchant’s card transactions is collected and used as a payment buffer by acquiring banks. This payment buffer is the rolling reserve a bank uses to reduce its potential losses from chargebacks.
- Longer Settlement Period
The duration of the settlement period is high to reduce the chances of a chargeback.
What To Expect With High-Risk Merchant Account Services
Credit card processing for those who offer online merchant services comes at a usually higher price than traditional accounts.
- Excessive Fees and Terms
High risk merchant services provider charge higher fees and have stricter contracts. Moreover, all high-risk service providers do not work with all high-risk merchants. So the ones who work with merchants from industries other high-risk processors do not; they charge even a higher rate.
- Predatory Practitioners
Research before taking the services of high risk merchant services providers as many scammers charge exorbitant fees and have strict contracts. It is advised to take help from lawyers to understand the contracts.
- Revenue Limiting Reserves
Revenue limiting reserves are the reserves that act as a hedge for the payment processor against your business failure. It helps them to recover the money you owe them. There are three types of reserves:
- Fixed Reserves- Once the reserve cap is met, the payment processor will not withhold any additional funds unless the reserve drops.
- Rolling Reserves- Here, providers withhold a percentage of daily revenue for a limited time, and they return the money as other funds become available.
- Up-Front Reserves- In it, the payment processor has the right to withhold all funds you accrue from credit card transactions until you meet the reserve balance.
Avoiding Classification as A High Risk Merchant Account
To avoid being classified as high-risk merchant account services, you will have to improve your credit score and prevent chargeback frauds. Moreover, building and maintaining a positive merchant account history will go a long way in helping you avoid classification as a high-risk merchant account.
Conclusion:
The high-risk merchants have limited choices when it comes to merchant service providers, are under stricter contracts and need to pay higher fees. The high-risk merchant service providers offer services such as chargeback dispute resolution and prevention, ACH processing, online payment gateways, high volume payment solutions, POS system, merchant cash advances and many more.
