What is a High Risk Merchant Account?

High-Risk Merchants
Every business that accepts credit and debit cards, which is virtually all of them nowdays, requires a merchant account. Simply put, a merchant account is a type of business bank account that allows the business to accept electronic transactions–credit and debit cards (and even some more obscure electronic transactions). The only electronic-based businesses that do not use merchant accounts use a payment service provider (PSP.) There are several well-known PSPs, particularly Square, PayPal, and Stripe. PSPs don’t offer the full-service that you get with a merchant account, but typically have lower costs. Processing rates are typically flat-rates, which are higher than a merchant account, but there are cost savings in fewer fees, typically using pay-as-you-go pricing. The downside to PSPs is that they’re only good for businesses with relatively small amounts of sales (a few thousand dollars per month), they lack the stability of a merchant account, and they have much worse customer support than a merchant account. Typically, if your business is making even a small-but-decent amount of money, you don’t want a PSP. 

What is a High Risk Merchant Account?

A high risk merchant account is, as the name suggests, a merchant account for a business that is considered high risk. But what does that mean? What makes a business high risk, and is it as bad as it sounds? Fortunately, it’s not as bad as it sounds. But it does require special handling. There are many reasons why a business might be termed high risk, and they can be very basic and non-threatening:
  • Location of your business: There are different places that are considered riskier than others, primarily two: the first is a home-based business. Home-based businesses are typically considered higher risk because they’re more likely to fold than a brick-and-mortar business. The second place that can get you defined as high risk is if you work in a foreign country–or even if you do business with people out of the country. Either of these are risk factors that a merchant account will take into consideration.
  • How Long You’ve Been in Business: If you’re brand new, no matter how good your products are, you’re probably high risk. Financial institutions like things to be settled and calm, tried and tested. If you’re a new company, there’s no data for the financial institution to base their decisions on. You’ll be high risk.
  • Your Merchant Account History: Think of it like your credit report. If you’ve been with other merchant accounts and things haven’t gone so well, you’ll be high risk.
  • Chargebacks: What’s a chargeback? A chargeback is when a customer disputes a charge and the charge is reversed, returning the money back to them. These are huge red flags for high risk businesses. It is far better to solve a problem through customer service, refunds, and communication with your customer than to force them to get a chargeback. A company with a lot of chargebacks is a major high risk. And, there are some types of businesses that experience a lot of chargebacks, which make them automatic red flags when applying for merchant accounts. Some of these businesses include:
    • Casinos, Gambling or Gaming
    • Telemarketing, VOIP
    • Pharmaceuticals, Online Drug Providers
    • Adult Entertainment and Dating Services
    • Travel, Hospitality, and Ticketing Agencies
    • Attorneys and Bail Bonding Services
    • Subscription Services
    • Credit Repair/Debt Reduction Counseling
    • Debt Collection
    • Cigarette, Vape, or CBD shops
    • International Shipping, Import/Export
    • Lingerie Sales
    • Timeshares
    • Weapons of Any Kind
    • Pawn Shops
    • Real Estate
    • Nightclubs
    • Health and Wellness Programs, Supplements
  • Your Credit Report: Yes, you’re applying for a business merchant account, but if you personally have a bad credit report it will put your business into the high risk category. 

What Does It Mean If I’m High-Risk?

Getting a high-risk merchant account isn’t a black stain on your permanent record. It just means that there are some different hoops that you’ll need to jump through as you work with your merchant account. For starters, there will be extra scrutiny before you get approved for your merchant account.  You will likely have higher fees and processing rates. There is a chance that some providers may refuse to do business with you.  That said, it’s not all bad. There are many benefits to having a high-risk merchant account. Yes, you’ll have higher fees and increased scrutiny, but you also get some perks:
  • More Flexibility: Low-risk businesses are limited in the types of revenue they can collect by credit card, while high-risk businesses have more freedom. This includes things like offering recurring payments to customers, processing higher volumes for special events like sales, and selling a wider variety of goods and services. 
  • International Business: Remember how we said that working internationally makes you high risk? Low-risk businesses are very restricted when it comes to international sales, but by being high-risk you have much more freedom to work outside the borders. 
  • Chargeback Protection: When a low-risk business gets too many chargebacks, the merchant account gets skittish and may terminate their account. With a high-risk account, chargebacks are more expected and, while they need to be kept to a minimum as much as possible, your account is less likely to be suspended. 

How Do I Apply For a High-Risk Merchant Account?

At TranscendPay, we work with a diversified network of banks and financial institutions to provide merchant payment processing services with no-reserve/no escrow requirements and minimal transaction fees. Our technology solutions allow you to integrate our revolutionary payment gateway into your existing infrastructure to streamline your payment processing. Whether you’re a newly formed startup ready to begin collecting payments, an established corporation looking for greater flexibility and transparency in your payment processing, or a high-risk business trying to set up a high-risk merchant account without paying crippling fees, Transcend Pay has the tools and expertise to help.