What is high risk merchant account and merchant processing ?

A company with a high risk of fraud and chargebacks is assigned a high-risk credit card processing merchant solutions account. This decision is made by high-risk credit card processors depending on the company’s nature, financial history, and location. If you have a high-risk merchant solution account that accepts high-risk credit card processing will be substantially more expensive.

The bigger the number of chargebacks a merchant solution business receives, the higher the risk. As a result, the industry’s reputation and processing history are the most crucial variables (a chargeback percentage of less than 0.9 percent of all transactions is preferred).

For high-risk retailers, here are some high-risk credit card processing criteria. Keep in mind that they may vary significantly depending on the payment processor’s policies: 1 sales volume of greater than $20,000 each month The average high-risk credit card processing transaction is thousands of dollars in value. A business sells products and services to countries with a high risk of fraud.

A merchant account for a high-risk business

When applying for a merchant solutions account, you’ll be asked for business and tax details, as well as a credit check in many circumstances. If your application indicates that you might be a high-risk merchant, you’ll be denied a merchant solutions account. Or given one with high rates and fees to compensate for the payment processor’s belief that your account is more likely to experience fraudulent charges, chargebacks, and other issues.

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It’s important to remember that each high-risk credit card processing defines “high risk” differently, so just because one thinks you’re risky doesn’t mean they all do. If you need to open a high-risk merchant services account, expect to pay much more for high-risk credit card processing. According to ShopKeep, a merchant services provider, high-risk shops can pay up to 2% more per transaction than low-risk merchants. Some of the advantages of a high-risk merchant solutions account are as follows:

·       Longer contracts

If you’re a high-risk merchant solution, your high-risk credit card processing will almost certainly try to get you to sign a long-term contract so that you can lock in lower rates, even if your risk rating improves over time.

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·       Tiered pricing

While high-risk credit card processing may provide high-risk merchants solutions with interchange-plus pricing, tiered pricing is significantly more common. Per transaction, tiered pricing is frequently more expensive.

·       Chargeback fees 

If your high-risk merchant processing receives a chargeback, it will assess a fee to your account. Chargeback expenses for high-risk merchants solutions are usually higher than for low-risk enterprises.

·       Automatic renewal clause

Another common feature in a high-risk merchant solution account contract is a clause that allows the contract’s terms to be extended beyond the initial expiration date. Read carefully to understand when notification is required if you don’t want the automatic renewal clause to kick in.

·       Early termination fee

If you want to get out of your contract before it expires, expect to pay an early termination price. The agreements you make with your high-risk merchant processing affect your price.

·       Liquidated damages clause

If the early termination charge isn’t enough, your contract may include a liquidated damages clause that requires you to pay an additional sum if you break the contract’s terms.

·       Keep a reserve

Some payment processors may require you to keep a percentage of your credit card sales as a security measure against fraud and chargebacks. One of three types of reserves: rolling, upfront, or fixed, may necessitate the use of a payment processor. A rolling reserve is generated when a payment processor sets aside a percentage of your daily sales for a defined length of time before gradually delivering the funds to you.

·       Up-front reserve

An up-front reserve is a sum of money that must be deposited into escrow at the start of a contract and held there until payment processing fees cover the reserve’s actual value.A set budget is the high-risk merchant processing deducting a percentage of each transaction until the account reaches a certain amount.

·       Account freezes or terminations

Account freezes or terminations may occur if your account becomes riskier over time, stopping you from accepting credit or debit card transactions. If the situation persists, your payment processor may close your merchant account. Square and Stripe, for example, are vulnerable to this issue.

These businesses offer a single large merchant solutions account that all of their clients can use. If one customer becomes riskier than the rest, the payment service provider would be better off deleting that person from the account than increasing the charge for the remaining customers.

Merchants’ Processors

Regardless of the firm’s size or style, customers must be able to receive and make payments. With the number of high-risk merchant processing options growing by the month, for business owners to understand what options they have. When starting their own business, many individuals wonder, “What is merchant processing?” The solution is straightforward.

Merchant processing refers to a high-risk merchant processing capacity to accept a transaction payment through a secure channel. Some of the costs that are covered are as follows:

• We take all major credit and debit cards.
• We take all major credit and debit cards.
• Transactions cleared through the Automated Clearing House (ACH) (sometimes called EF)
• Checks that are generated electronically

Conclusion

As you can see, there are several reasons why your business can be labeled high risk. The process will be simple if you open a high-risk merchant account with a trusted payment processor.In certain businesses, disagreements are more common than in others. As a result, it’s only natural that they have rules. If you accept payments through a respected high-risk merchant processing that prioritizes security, you can be confident that chargebacks fraud will be reduced.