What’s a High Risk Merchant Account?
High risk merchant account is a payment processing agreement customized to fit businesses which are considered to be high risk or operating in an industry that’s considered as such. Oftentimes, these merchants have to pay higher fees for the merchant services, which could add to their business expenses that later affect their ROI and profitability. This is mostly felt among companies that were reclassified as being high-risk industry and were not prepared to deal with the cost that are associated to being a high risk merchant.
There are companies that specialize specifically with high risk merchants by providing competitive rates, lower reserve rates and/or faster payouts. Of course, these are meticulously studied in an effort to increase interest.
Businesses in different industries are considered high risk primarily because of the nature of business they’re in, the methods that they apply and a number of other aspects. So as an example, adult businesses are seen high risk in operation like bail bonds, car rentals, legal offline and online gambling, travel agencies, collections agencies and many other businesses in the offline and online arena. And due to the reason that it is riskier for banks and financial institutions to process payments for the said companies, it mandated them to sign up for a high risk merchant account. So in comparison to the typical merchant accounts, this carries different fee schedule.
Merchant account is the bank account but this serves more as a line of credit that allowed an individual or merchant or a company to receive payments from the customer’s debit and credit cards. The bank that is providing merchant account is referred to as the “acquiring bank” and the bank that has issued the consumer’s card is known as the issuing bank. Another critical component of the processing cycle is the gateway. This handles the transfer of transaction information from the customer to the merchant.
Acquiring bank might be offering payment processing contract or perhaps, the merchant might have to open a high risk merchant account w/a high risk payment processor. This payment processor will collect funds and then, reroute it to the account of acquiring bank.
With regards to high risk merchant account, there could be more risks involved in the integrity of the funds and at the same time, the possibility that the bank is financially responsible for any problems that arise. Because of this, high risk merchant accounts oftentimes put extra layer of security such as delayed merchant settlements in which the bank is going to hold the fund for extended period of time to be able to offset the risks for fraud transactions.