What is High-Risk payment processing?
When providing merchant accounts to businesses, most major merchant account providers will deem certain business ventures/sectors too high a risk to associate/work with and therefore generally refuse to provide a merchant account to them. This can leave many businesses with limited ways to process money.
There are, however, account providers who specialise in working with higher risk businesses in order for them to process as any other business, this will usually come with many conditions which normally involve a higher rates and other terms.
Most high-risk merchants come from one of the flowing sectors listed below.
These Industries are often considered to be ‘high-risk’ due to age verification, regulatory frameworks and high risk of chargebacks.
- tobacco and electronic cigarettes
- drugs and drug products (including prescriptions)
- airline, travel, tourism and lodging
- debt management and collection agencies
- payday loans
- foreign exchange (Forex)
- pyramid selling
- dating and escort services
- adult entertainment
- timeshares and holiday clubs
- tech support
- money-making products and services
- monthly memberships and subscription services
- advertising services
- online auctions
- events and tickets
- penny auctions
- file sharing
- affiliate marketing
What are the disadvantages to a High-Risk Merchant Account?
As mentioned above, due to the high-risk nature of the above industries, providers will impose further terms that would be less favourable than with a regular merchant account, as outlined below. This is normally due to the risk the provider is then taking on as well as the further work that would be required to proceed.
- setup fees
- a minimum monthly number of transactions
- higher transaction fees
- a longer settlement period
- a rolling reserve
- an annual fee
What are the advantages to a High-Risk Merchant Account?
High risk merchant accounts also come with a range of benefits as outlined below.
Lower Risk of Account Termination
All merchant accounts have their own risks associated in terms of account termination. However lower risk accounts are much more susceptible to having their accounts closed if there is an unusual amount of chargebacks/activity taking place. However, a higher risk merchant account has already been set up knowing the risks behind the account. If a chargeback does happen or someone fraudulently uses another’s card, the provider has the measures in place to prevent the fraud or prevent from going further.
Better Security Measures
During the transaction process, Higher-risk merchant accounts use reliable detection methods to determine if the card is legitimate. These techniques help protect the merchant provider, the business, and the card’s original owner from theft.
Access to Larger Markets
Having access to a high-risk merchant account opens a new world for sales online and over the phone. This then reaches a much wider audience by allowing access for online sales via a website. Without a website (or online merchant account), markets can be hugely limited.