A merchant account is vital to any business. In order to accept credit card payments, you will require a merchant account of some form. This applies even if your business is deemed high risk. While gaining approval for a merchant account can be increasingly difficult for high-risk businesses, it doesn’t have to be impossible. There are steps that you can take to get approved for a merchant account. In this article, we will be going over what a high-risk business is and some of the different options for high-risk business merchant services.
What Is A High-Risk Business?
Gaining approval for a merchant account from thesoutherninstitute.com is not really a difficult task at all for a normal business that is not deemed high-risk. However, once you are designated as a high-risk business for whatever reason, things can get much more difficult. The biggest issue stems from merchant providers assessing your risk based on what industry you are in, what you sell, what your average transaction size is, and how at-risk they deem you are for chargebacks. Despite your business’ record with previous merchant accounts, as soon as you are designated high-risk, it can get very difficult to gain approval for an account. Below, we will discuss some of the different reasons your business might be designated with the high-risk tag.
Most Likely Reasons To Be Considered High-Risk:
If you are selling products that are either completely illegal, illegal at the Federal level, or that are somewhere in between, you are going to be designated as a high-risk account. If you are operating in the grey area of a respective marketplace, you are going to find it increasingly difficult to find a merchant service provider because you will be classified as high-risk since you are not selling products that are entirely legal.
2. Risky Services
Another reason you might be considered high-risk would be if you are selling or providing risky services that are known for experiencing a lot of chargebacks. This includes various services including but not limited to gambling, guns, ticket brokers, and more.
This is a major reason your business will be classified as high risk. If you are operating in an industry that experiences a lot of chargebacks, you are going to be designated as high-risk for certain. Dealing with chargebacks is incredibly costly for a merchant service provider. Because of this, they look to minimize the risk of having to deal with them in too large of quantities by limiting the number of high-risk accounts they hand out. This is also true if your business is operating in an industry where there is an increased risk of fraud. If they deem that your business is too risky based on the expected profit it would bring in, they simply won’t approve your account. Now that we have gone over some of the different things that can classify you as a high-risk merchant, we will discuss some of your options below.
Options For High-Risk Merchants:
1. Up-Front Reserve
If you are someone that is classified as a high-risk merchant for whatever reason, you still have options available to you. One of the options that you are likely going to want to consider is known as an up-front reserve. This is a way for merchant account providers to significantly reduce the amount of risk that they ultimately have to take on when they choose to do business with you. With this, they analyze your expected transaction volume and they require you to make an up-front investment that is placed in escrow. This would allow the merchant to minimize the amount of risk they take on because they will be holding your money in escrow. Another way they might structure this up-front reserve risk-reducing process is by holding all of your credit card funds until you match the reserve balance.
2. Rolling Reserve
This is another option for high-risk merchants that are looking to get a merchant account. This is another risk management strategy deployed by high-risk merchants to help protect themselves from taking on a high-risk business. This helps protect them from chargebacks, fraud, and other issues that might stem from a high-risk account. Typically, with this process, the merchant provider would withhold an agreed upon percentage of your daily revenue for a specified time period. Then, they would release the funds as you continue with the partnership.
3. Fixed Reserve
This is another risk management strategy that is deployed by merchant account service providers that helps to reduce risk. This is when the merchant account provider without an agreed upon percentage of every single transaction that you (the merchant) makes until the agreed-upon cap is reached. This is different from a rolling reserve because this specific risk management strategy is not a long-term reserve. Instead, there is a fixed (cap) that is meant to be reached. Once the cap is reached, there is no longer additional funds withheld. With that being said, there is still typically a clause that allows the service provider to continue to withhold money if there are any specific numbers of charge-backs or fraud attempts that force the provider to reach into the reserve to pay it off.
Overall, it might not be easy to conduct business when deemed high-risk. After all, you need to have a reliable merchant account provider in order to process credit card payments. A majority of people pay with credit card and without being able to accept credit card payments, things can get real tricky. However, there is not much you can do when you are labeled high-risk no matter the reason. While you have options, your options are certainly limited and they typically don’t come with the best of terms. It is also important to keep in mind that you are likely going to be dealing with various other issues that come with having a high-risk business such as credit card account freezes and more. Therefore, you need to have contingencies in place while operating a high-risk business.