Calculating Risk: What Is A High Risk Merchant Account?

There are more than 30 billion credit card transactions every year. As mobile and online shopping becomes even more common, that number will only continue to rise.

From these statistics, it’s easy to see that it’s a smart move to accept card payments for your business. It’s what your customers want, after all.

For some, though, that’s easier said than done. To accept payments, you need to get a merchant account. Unfortunately, not everyone will qualify for one.

You may need to get a high-risk merchant account. What’s the difference? This guide will tell you everything you need to know.

Accounts for High-Risk Merchants

A merchant account allows you to accept card payments from your customers. To get one, you’ll need to apply to a merchant account provider.

These providers offer different types of accounts for different types of businesses. Before they agree to give you an account, they’ll assess your business for risk.

Certain industries are considered a higher risk. Some common entries on the high-risk merchant list are:

  • Casinos and fantasy sports websites
  • Online stores
  • Airlines
  • Collections services
  • Life coaches
  • Vacation planners
  • Financial services

As you can see, the list of high-risk merchants is varied. All of these businesses are at higher risk of fraudulent payment and chargebacks.

What red flags make a provider declare your business a high-risk merchant? We already mentioned that you’re at a higher risk of fraud and chargebacks. The vendor will also assess:

  • How long you’ve been in business
  • Your payment structure
  • Where your business is headquartered
  • Your account history
  • Your personal credit history
  • Your delivery times

If you’re a new business, you may be considered “riskier” than one that’s been in business longer. If you sell in the US, but your company is located in another country, a provider may consider you higher risk.

Your payment structure and even the cost of your average sale can influence your risk. If you use tiered payments or subscription services, you may be at a higher risk of chargebacks. If your average purchase price is quite high, your business may be a target for fraudsters.

Your personal credit history may also play a role. If your business is new, a provider may look at your own financial history and assess your risk.

Finally, you may be assessed as a high risk merchant because you’ve had trouble with your merchant accounts before.

The MATCH List

Mastercard maintains a database with information about merchants who have had a previous agreement terminated. Chargebacks and other violations can land you on the MATCH list.

How a High-Risk Merchant Account Helps

You may wonder why a merchant payment services provider wants you to get a high-risk account. A regular merchant account is probably pricey enough. High-risk accounts often have a higher price tag.

They also come with high-risk merchant services that can help your business. While the price tag may seem like the provider is trying to line their pockets, a high-risk account actually benefits your business.

The first is some leniency from providers. If your business experiences a lot of chargebacks or has been a target of fraud, it’s important that your provider knows that upfront. A low-risk merchant account won’t cover you and might be closed if you have too many chargebacks.

More Freedom to Sell

High-risk merchants are able to sell what they want, where they want. Low-risk merchant accounts don’t have the same freedom.

Take a look at the subscription payment model. This model allows you to collect recurring payments from your customers.

Unfortunately, it also comes with a high risk of chargebacks. Someone may cancel their subscription and demand a refund if they don’t remember signing up for your services.

If this happens with a low-risk merchant account, you’re at risk of losing your account altogether. A high-risk merchant account allows you to offer recurring payments without worry.

You can also sell a wider variety of products or offer more services. Your processing volumes for launch events and special sales are also usually much higher than those of a low-risk merchant.

Finally, high-risk merchant accounts often have fewer international restrictions. If you’re thinking about going global, a higher risk account could be the smart move.

Managing Your Risk

If you decide to seek out services as a high-risk merchant, you should ensure that you truly fit the bill. Some businesses are considered high risk because of their industry. Other merchants are unfairly labeled due to how they’ve handled chargebacks.

Whether you’re in a high-risk industry or trying to clear your name, one of the best things you can do is manage your risk. Avoid chargebacks whenever possible.

You can create policies that help you resolve customer issues quickly. Good communication with your customers is usually key. Finally, offer refunds to customers.

You should also take steps to ensure your business isn’t attractive to fraudsters. If you operate online, be sure to invest in security measures and protect your customers’ data. This is especially important for any merchant that processes high volumes of transactions.

What to Expect with Your Account

If you need to get a high-risk merchant account, you can expect to pay higher transaction fees. You’ll also be assessed fees for chargebacks immediately.

A provider may want to negotiate a longer contract term. In addition, they may ask for automatic renewal as well. Always check the terms of the agreement carefully.

Accept Payments on Your Terms

Now you know what a high-risk merchant account is and why you may need one. You may want to consider one for your business.

If you want to learn more about processing payments, securing your business, or anything else, you’re in the right place. We have plenty of informative articles to help you on your way to success.

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