What are High-Risk Merchant Accounts and How to Setup One?

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What are High-Risk Merchant Accounts and How to Setup One business

What are High-Risk Merchant Accounts and How to Setup One?

A high-risk merchant account is a merchant account designed for businesses deemed as high-risk businesses or operating in high-risk industries. Such business might include; betting or gambling businesses, adult entertainment businesses, bail bonds, auto rentals, collection agencies, businesses offering subscription services, and those in the medical marijuana market.

Multilevel marketing and many other such businesses where the customer is not physically present. Such businesses find it hard to get financial services directly through financial institutions thereby requiring high-risk merchant services. High-risk merchant services are provided specifically by companies tailored to offering those services but at an extra fee.

The business, therefore, pays for more than they would if they were operating directly with a financial institution. The best highly recommended merchant services, when provided, are unlike other merchant services as the service providers offer faster payouts, lower reserve rates and other benefits that will attract high-risk businesses.

A merchant account operates like a line of credit allowing the high-risk business to charge customers through credit and debit cards. In essence, however, it is a bank account just like any other and therefore offered by banks.

Risk Management for High-Risk Merchant Services Providers

The bank that offers the high-risk merchant services is called the acquiring bank while that that offers the credit or the customer’s account is called the issuing bank.  For the acquiring bank to safeguard themselves from losing a lot of money, there are several risk management features put in place. Here are some of those safeguards used.

Delayed Settlements – In this solution the acquiring bank holds the funds for a slightly longer period than for other merchant accounts. This is done to safeguard the bank in case of a fraudulent transaction.

Use Of Reserve Account – In this method the acquiring back uses a reserve account where a portion of the funds is held for a certain duration. For instance, the acquiring bank may hold 15% of the funds for a month to three months. This cushions the acquiring bank from losses in case certain issues were to arise. The money is passed to the business after the period has elapsed and the process repeats itself.

These safeguards are put in place to protect the acquiring bank as the monies being transacted in the account have a high chance of refund, fraud, chargeback or reversal. When this happens, the acquiring bank has to incur administrative charges to deal with the setbacks.

What are High-Risk Merchant Accounts and How to Setup One credit

How to Open a High-Risk Merchant Account

Getting the right high-risk merchant account can be a daunting task for many businesses. A lot of due diligence is required before settling for one services provider. Asking for multiple quotes from different agencies is highly recommended to find best solution for high risk merchants. The biggest hindrance to high-risk merchant services for businesses is the high fees associated with these accounts.

Settling for an expensive account can take a large portion of the profits and affect the return on investment. However, the business applying for the merchant account should not lie in the application to try and cheat the system. This may lead to denial of the account or cause problems later on.

How to Find a Reliable High-Risk Merchant Services Provider

It is recommended to start the search for such a company online. It is possible to find a lot of information on the internet nowadays. From the internet, a list of the most favourable three should be taken. The three should then be qualified one after the other until the very best one has been found. The qualification process can be based on the following criteria.

Charges – The company with the least charges might not be the best perse, but it will help to keep the profits at a maximum. While deciding on the charges it is also important to consider the services being offered to determine if there’s value for money.

Services Being Offered – The other consideration should be on the services being offered. Different institutions will offer different services to their clients. For instance, some might have fast payouts for their account holders while others might not. The right company is the one that will offer the services tailored to meet the needs of the business.

Clear Communication – The company should also offer very clear communication regarding how their business is conducted. This should be given in writing. The company should indicate clearly how the payouts are made when they are made and the frequency of the payout.

Whether they have a reserve account, and all other important information regarding their operations are also indicated. All the charges to be incurred are also indicated.

For the application process to be smooth sailing, the applying business should ensure they have all the requirements at hand. The information provided should be clear and true. The business should also have all the funds required to start the account if any. It is possible for accounts to be denied when the applications are not made properly.

Contact us for more information on our high-risk merchant services for the best return.

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