Are you wondering just how risky your business is? For most of us, managing money involves dealing with credit cards. Because of this, plenty of companies carry high risk merchant accounts to manage those financial risks. But what does “high risk” really mean?
There are certainly some signs of a high-risk merchant, but it depends on the situation. And while every business faces a certain level of risk, some face more risk than others. With a thorough understanding, you wouldn’t want to end up as a high risk merchant.
Read on to find out what is considered a high risk merchant and how you can protect yourself from harm to your business.
What is a High Risk Merchant?
To understand a high risk merchant, it is essential first to understand what a merchant account is. A merchant account is a type of bank account that allows businesses to accept credit card and debit card payments.
High risk merchants are businesses that are more likely to default on their obligations than other businesses. They have higher rates of chargebacks and fraud and may also be in industries prone to economic downturns. Because of this, they often have to pay higher fees to processors to get approved for merchant accounts.
Financial institutions charge higher fees for processing payments for high risk merchants. It can increase the cost of doing business for these merchants and make it more difficult for them to compete with low-risk companies.
Reasons Why a Merchant is a High Risk
Many reasons a merchant is a high risk make it difficult to find a suitable payment processor. While some are obvious, some are more nuanced. Each provider may also have a different set of criteria for considering high risk merchant accounts.
Here is a list of the top things that consider a business to be high risk:
High Transaction Volume
If you process a high volume of transactions, you’re considered a high risk merchant. That’s because there’s a greater chance that something could go wrong and you could lose money.
To offset that risk, banks and merchant account providers charge higher fees for high risk merchants. If you process a lot of transactions, you might be able to negotiate a lower rate, but you’ll still be at high risk.
Type of Business
When it comes to what banks consider a high risk merchant, it also depends on the type of business. For example, a company that deals with selling products or services that are high risk, such as alcohol, tobacco, firearms, or gambling, will be considered a high risk merchant. In these types of businesses, there is a greater chance that the customer will have problems with the purchase and request a refund.
On the other hand, a low risk business, such as a grocery store or a clothing store, will not have the same problems as a high risk merchant. They sell essential commodities, and their operations usually have a lot of stability.
High risk merchants may have to pay more for their merchant account, or banks may decline their account altogether. If you’re a high risk merchant, it’s essential to find a payment processor willing to work with you.
Accepting International Payments
Regarding international payments, a few factors can make a high merchant risk. It can include things like the type of product or service. It also involves the base country of the merchant and the customer’s billing or shipping address.
International payments may also have a high risk as there is a high chance of fraud or chargebacks. It is because verifying the customer’s identity can be more challenging, and other countries may have different refund policies.
Additionally, merchants based in countries with a high risk of fraud, such as Nigeria or Ghana, will likely be considered high risk by payment processors. Furthermore, if a customer’s billing or shipping address is in a high risk country, the merchant may also be a high risk.
When a new merchant sets up their account with a processor, they are also a high risk merchant. Because they have no track record with the processor, the processor doesn’t know how much of a risk the merchant is. The processor will usually charge the merchant higher fees or put a hold on their account until they have established a history with the processor.
Low Credit Score
High risk merchants are those that have a high chance of defaulting on their credit obligations. It could be due to various factors, including a low credit score. Merchants with a high risk of defaulting pose a greater risk to creditors. As a result, they may be required to pay higher interest rates or provide collateral.
To offset this, you can take steps to reduce your risk profile by maintaining a good credit history, having a low chargeback ratio, and carefully managing your account. Doing so can increase your chances of getting a low-risk merchant account status.
How to Get a High Risk Merchant Account
Getting a high risk merchant account can be difficult, as banks and other financial institutions are often hesitant to work with businesses that are seen as high risk. However, several companies specialize in high risk merchant accounts, and by working with one of these companies, businesses can get the financial services they need. To learn more about payment processing for high risk merchants, click here now!
Businesses will need to provide additional documentation to their acquiring bank, such as a business plan, higher processing limits, and in some cases, a reserve account. When signing up for a merchant account, it’s essential to read the contract carefully to see if there are any restrictions or higher fees for high risk merchants.
Knowing What is a High Risk Merchant
As a high risk merchant, you will have higher fees for processing payments. You will also have a higher risk for chargebacks and fraud. You may also be required to have a reserve account to cover these risks.
To ensure you get the best payment processing for high risk merchants rates, work with a processor specializing in high risk merchants.
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