What’s A High Risk Merchant Account?
A high-risk merchant account is a way for a business that banks think is a high risk to process payments. Since high-risk businesses have a higher chance of chargebacks, they have to pay more for merchant services.
If your business has a high chance of chargebacks or if you’ve had a lot of chargebacks and refunds in the past, the bank might put a rolling reserve on your account. The amount of money will cover any chargebacks or fraud that might happen.
The risk of a business goes up the more chargebacks it has. So, the most important things are the industry’s reputation and processing history (your chargeback ratio should be less than 0.9% of your total transactions).
Here are some general traits of a high-risk merchant, but keep in mind that each payment processor’s rules are very different:
- Monthly sales of more than $20,000
- More than $500 is spent on credit cards on average.
- A company sells goods and services to countries with high fraud rates.
- Bad history of credit and too many chargebacks.
Who Needs an Account for High Risk Businesses?
The travel industry is an example of a high-risk business since there are many things that can cause trips to be canceled. This usually leads to a lot of refunds and chargebacks from customers. Some others include websites for gambling, foreign exchange trading, and adult content, to name a few.
There are many other industries or business models that are prone to chargebacks. Here is a list of the most common types of businesses that need high risk merchant accounts.
The Fees for a High Risk Merchant Account.
When it comes to fees, the hard truth is that high-risk merchant accounts cost more than low-risk merchant accounts. Costs are unavoidable, so you should expect to pay more in processing fees and account fees.
But you should know that high fees for high-risk merchant accounts have been the norm for a long time, and you can now find payment processors who offer competitive rates that are right for your business.
Stick to the old way, which has a 15 percent commission rate or even higher fees. You don’t have to be stuck in three- to five-year contracts. Extra costs are the same. Read the contract carefully because some high-risk payment providers may still charge you a setup, monthly or annual fee, or even a PCI fee.
Also, if you want to close your account before the date on the contract, you may have to pay a fee. Details about the cancellation fee should be in the contract, so read it carefully before signing.
The payment processing industry is improving, so look for high-risk payment processors that only charge you for transactions on your website or app. Finding a payment processor who will give you a High Risk Merchant Account at a fair rate can be hard.
With these 8 tips from experts, you’ll be able to open a High Risk Merchant Account quickly and easily. good news, is you can start processing payments from customers in an affordable way. But, it’s not impossible.
8 Key Secrets to Setting Up a High-Risk Merchant Account.
1. Look for a Service that Specializes in High Risk Merchant Accounts.
Best and intuit merchant services providers often do not offer accounts to high-risk businesses. The fact that they don’t offer High Risk Merchant Accounts is a big part of why they can offer such low rates.
Not doing business with risky merchants makes sure that their costs stay low. Some might agree to offer services to high-risk businesses. If they do so, it’s likely that they would charge you too much and lock you into harsh contracts.
2. Know What It Will Cost You.
Your high-risk status means that, even if you use a specialty service, you will always have to pay more than a regular business. You’ll generally pay between 2 and 5 percent per transaction, and account fees will vary greatly based on the services you need.
No one will give you the good deals and low rates that most processors advertise. You need to know this so that you don’t pass up a great service for your business because the price is much higher than what you’ve seen elsewhere.
3. Figure Out What You Need to Process.
A high-risk merchant account needs the same things that any other account does. But since you have to pay higher fees and rates, you should carefully consider what services and equipment your business needs to keep costs down.
Think about whether you need these things or not:
- A Credit Card Terminal is a must-have for any business with a physical location. More and more customers prefer to pay with credit cards instead of cash because it’s easier. You’ll also have to decide if you need an NFC-enabled terminal that can handle contactless payments like ApplePay.
- Mobile Payment Solutions: If your business is always on the move and you need to be able to take payments anytime, anywhere, you’ll need a mobile payment solution. If you’re always in the same place, on the other hand, you might want to spend your money on something else.
- eCommerce Payment Gateway: Do you want to sell things online? Then you’ll need an eCommerce payment processing solution that is easy to use and safe. You don’t need this service if your business has no plans to move into the virtual world.
4. Purchase Equipment (Don’t Lease).
The high equipment cost can be a big turnoff when starting a new business. Still, buying credit card processing equipment outright will save you more money in the long run than leasing.
Most leases make you sign a contract for 48 months. And they charge you a lot of money to get out of it. You will still have to pay for it until the contract is up even if you dint use it.
Not only that, but some leases will charge you up to $100 a month for a machine that would cost between $300 and $700 to buy outright. If you put a few numbers into your calculator, you’ll see that buying your equipment is the better investment.
5. Get Full Help with Your Online Business.
If you only want to run a physical store, you don’t need e-commerce support. If you only do business online, on the other hand, the right e-commerce solution will be the core of your business.
But before you can start selling your products online, you’ll need to set up a secure but easy-to-use e-commerce payment gateway that will make online shopping easier for your customers.
Depending on your business type, you can also use a virtual console to handle transactions where the card is not present. A virtual console works the same way as a regular credit card terminal or point-of-sale system, but it does so through a website.
6. Haggle Over Prices Based on What You Need.
Most high risk processors won’t be able to give you rates or fees upfront because setting up a high risk merchant account isn’t easy. Before getting high-risk payment processing solutions, you have to deal with several third-party organizations and services.
You will need to talk about prices to get the best deal for your business.
Part of this process is just ensuring you only buy the tools and services you need by using the tips above.
Aside from that, you’ll always have to pay processing rates and account fees. Processing rates are how much you pay for each transaction, and account fees are how much you pay for your merchant account each month or year.
7. Try to Get a Contract that Lasts Only One Month.
If you’re high risk, a month-to-month contract is always the safest choice for a merchant account. If a provider thinks your business is risky, getting them to agree to a month-to-month contract is much harder.
The other option is the standard three-year contract, which often comes with a huge fee for leaving early. If your business has the bad luck to fail, these fees can be very bad for you.
Even though a month-to-month contract is ideal, remember that most high-risk merchant account providers won’t offer them. If you don’t know how long your business will last, you should ask for higher fees elsewhere to get a more flexible contract.
8. Find the Most Cost-Effective Balance Pebbles Reveal How to Control Costs.
Setting up your high-risk merchant account is, in the end, a game of balancing costs. If you use the tips above, you’ll be able to do just that. Think about how your business works and what it needs, and then come up with a plan to make sure you don’t pay a dime more than you have to.
Setting up a high-risk merchant account is a rough road, no doubt about it. But if you follow these tips, you’ll be able to design the perfect vehicle to get your business to profit.