A Guide to High Risk Merchant Accounts
If your business is a high risk business or operating in a high risk industry, you get a payment processing agreement from the bank or a merchant account that is a high risk merchant account. These businesses usually are charged a higher fee for merchant services and that is why their costs are greater because these charges are usually added to their business cost. Some businesses are affected by this high cost of merchant services especially those business who were re-classified as operating in a high risk industry and so they were not really prepared for these cost of operating as a high risk merchant; and this additional cost of business is also affecting their profitability and ROI. High risk merchants who cannot find a place to do business can work with companies that offer competitive rates, faster payouts, and lower reserve rates, and these are mainly to attract these kinds of businesses.
The label ‘high risk’ is given to a business due to the nature of the industry, the method by which they operate, and many other factors. Adult business, travel agencies, auto rental, collections agencies, legal offline and online gambling, bail bonds, and other offline and online businesses, can be considered high risk businesses. When banks and financial institutions work for these high risk merchants they are much aware of the high risk that these payment involves. And this is the reason why these businesses need to sign up for a high risk merchant account which has a different fee schedule than regular merchant accounts.
Because these merchant accounts are high risk there are additional worries about the integrity of the funds and the possibility that the bank may be financially responsible in case of any problem. That is why high risk merchant accounts often have additional financial safeguards in place such as delayed merchant settlement in which the bank holds the funds for a slightly longer period to offset the risk of fraudulent transactions. There is another way by which banks protect themselves from risk and that is to put up a reserve account where a small percentage of the settlement is help for one to three months until it is clear that the transaction was safe. This reserve account may or may not earn interest but when the reserve time has elapsed, the money is returned to the merchant and paid on the standard payout schedule. The risks for high risk merchant account are fraud, chargeback, refund, or reversal, like a stolen credit card used to make purchases or renting something using a debit card with insufficient funds. This increase risks for the bank and the payment processor because they will have to deal with the fraud.