A high risk merchant account can be a merchant card account or payment processing agreement which is tailored to suit a business which happens to be deemed heavy risk or maybe operating in an industry which has been deemed as such. These merchants usually have to pay higher fees for merchant services, which may enhance their price of business, affecting profitability and ROI, especially for firms that were re-classified as a very high risk industry, and were not prepared to handle the costs of operating as being a heavy risk merchant. Some companies specialize in working specifically with high risk credit card processor by offering competitive rates, faster payouts, and/or lower reserve rates, all of which are designed to attract companies which can be having trouble getting a location to conduct business.
Businesses in a variety of industries are labeled as ‘high risk’ due to nature of their industry, the method by which they operate, or a variety of other factors. For example, all adult businesses are regarded as being high risk operations, as well as travel agencies, auto rentals, collections agencies, legal offline and on-line gam-bling, bail bonds, and a variety of other online and offline businesses. Because working with, and processing payments for, these organizations can have higher risks for banks and loan companies these are obliged to enroll in a high risk merchant card account that has a different fee schedule than regular merchant accounts.
A processing account is really a banking account, but functions similar to a line of credit that enables a firm or individual (the merchant) to get payments from credit and atm cards, used by the consumers. The financial institution that provides the merchant account is referred to as the ‘acquiring bank’ and also the bank that issued the consumer’s credit card is called the issuing bank. Another essential aspect of the processing cycle are the gateway, which handles transferring the transaction information in the consumer towards the merchant.
The acquiring bank may also give you a payment processing contract, or perhaps the merchant may need to open a higher risk processing account with a high risk payment processor who collects the funds and routes these people to the account in the acquiring bank. With regards to a high risk merchant account, there are actually additional worries in regards to the integrity of your funds, and the possibility the bank can be financially responsible with regards to any problems. For that reason, heavy risk merchant accounts often have additional financial safeguards in position, such as delayed merchant settlements, in which the bank supports the funds for the slightly longer period to offset the risk of fraudulent transactions. Another means of risk management is the use of a ‘reserve account’ which is actually a special account in the acquiring bank wherein a portion (usually 10% or less) in the net settlement amount is held for the period usually between 30 and 180 days. This account may or may not be interest-bearing, and also the monies with this account are returned to the merchant on the standard payout schedule, when the reserve time has passed.
Payments to some high-risk merchant account are deemed to hold a heightened probability of fraud, as well as an increased likelihood of chargeback, refund, or reversal. For instance, someone may use a stolen or forged debit or credit card to help make purchases, or perhaps a consumer might attempt to execute an advance-authorization transaction (like renting a vehicle or reserving a hotel), using a debit card with insufficient funds. This increases the risk for your bank as well as the payment processor, as higrisk will suffer from the administrative fallout of handling the fraud. Ecommerce may also be a risk factor, because businesses tend not to actually see an imprint charge card; they take orders over the web, and also this can up the potential risk of fraud considerably.
When a merchant applies for a credit card merchant account using a bank, payment processor, or any other credit card merchant account provider, there are several things to consider before settling on the particular merchant provider. It is often possible to negotiate lower rates, then one must always request multiple quotes before selecting which high risk credit card merchant account provider to use for their processing needs.