A high risk merchant account refers to a special type of business bank account. The account is created via a payment processor that enables merchants to accept both credit and debit cards for their business transaction even though they carry the label of “high risk businesses” from their previous payment service provider.
The funds from transactions are directly transferred to the merchant’s business checking account. On average, the transaction takes place within 24-48 hours.
High-risk business owners hardly get favour from many merchant service providers. Providing services to high-risk businesses means taking higher risk that most merchant service companies are most unwilling to accept. As a result, high-risk business proprietors do not have many processing options and it significantly reduces their chance of generating high revenue and expanding their outreach. High risk business companies come to their rescue by assisting these merchants in getting required processing support. High risk providers have easier and more relaxed, flexible guidelines for financial assistance.
If your business has been put in the high risk category, it is important to understand the payment processing. In this blog, we will explain high risk merchant accounts, their benefits and how they work.
How it works?
Most merchant service companies put stringent restrictions on products and industries. As a result, many businesses are left with frozen funds, their bank account suspension and in some cases, even termination. If your account is cancelled, your business may be listed on the electronic database of high risk merchants. This will only worsen your situation by making it difficult to find a payment processor. In such cases, high risk merchant service providers come as a Messiah.
Providing service to the high risk business group is their forte and they do an excellent job on strength of their expertise and experience in this field. These service providers issue accounts to help merchants run their business smoothly without any fear of account termination.
Why some businesses are labelled “high risk”?
There are different reasons for your business listed in the high risk group. Some of these reasons are mentioned below:
- High-risk transactions
- Fraud-prone industry
- Lack of business history
- Poor credit score
- Reputational risk
- Process recurring payments
- Excessive refunds and/or chargebacks
Which are high risk businesses?
To your utter surprise, different sectors are put in the “high risk business” category. The businessmen operating in these fields find it a great challenge to receive help from a merchant account provider. Some high risk business industries are:
- Credit Repair
- Tobacco & Vape
A high risk business account is a special type of account that provides payment processing support to only the high-risk businesses. Each payment processor is guided by specific criteria, also called a credit policy. The policy makes a clear mention of the types of businesses that can qualify for such special funding.
There is no uniform credit policy and the difference occurs since the process is capable of conducting through due diligence, underwriting and their sponsor bank’s support. The processors with more underwriting abilities can take on higher risk and in turn, have permission to support more industries having the ‘high risk’ label.
High risk business accounts, via a payment process, are linked to virtual terminals, payment gateways and other payment technology platforms. Regardless of the reasons for a business to carry a high risk classification – industry, processing history or operations – these merchants are allowed to utilize the power of payment processing capabilities denied to them, by accessing a high risk business account. .
Merchant Accounts (high risk vs low risk)
High risk and low risk (also called standard) credit cards processing provide similar services. Both services are designed to make processing easier for a business. However, the major differences can be discussed in the light of high fees, reserve requirements, underwriting process or other financial helps for risk mitigation. High-risk accounts usually ensure the most advanced security features and issue fewer restrictions related to business operations.
What are the advantages and disadvantages of high risk payment processing?
If you are looking for high-risk payment processing, you may be willing to know the pros and cons of the system.
- Advanced security measures
- Low risk of account termination
- Higher chargeback thresholds
- Customized support and solutions
- Freedom of selling high risk products
- Longer approval time
- Reserve account funding
- Higher fees
If you run a high risk business, it is unlikely to get any help from traditional financial institutions in times of need. The best way out is to approach a high risk business service provider. Working with such an institution will vaccinate your business against some nasty surprises. With their assistance, you will be able to run your business without having to overstep risk thresholds.