4 Ways to Understand High-Risk Merchant Accounts

Stephanie Snyder / 15 Jun 2021

Did you realize that your enterprise merchant account can be classified as a high-risk account? After accepting debit and credit card transactions from consumers, providers will process your payments and deposit them into a given bank account. A transaction fee is deducted per processing carried out.

However, not all businesses pay the same amount in fees. The reason is those payment processors separate businesses into two groups; high-risk accounts and low-risk accounts.

Ways to Understand High-Risk Merchant Accounts

If you plan to open a merchant account, you should know that your account will fall into either a high or low-risk merchant account. A high-risk account is often considered to be at a higher risk of fraud and chargebacks. Higher-risk higher processing fees to better protect themselves in case of chargeback or fraud.

Here is what you should know about high-risk accounts if your processor categorizes you as an increased risk.

How can one define a High-Risk Merchant Account?

When your payment processor identifies a higher probability of fraud or chargebacks, you will be categorized as a high-risk merchant account. This directly impacts the processing fees that you’ll have to part with to accept debit and credit card transactions from customers. Low-risk merchant accounts are flexible. The pricing terms and the processing fees are negotiable.

To better recognize a high-risk account, payment processors often evaluate your tax information, credit check, and business financials to conclude whether you belong to that category.

How Payment Processors Determine a High-Risk Merchant Account

You can be identified to be a high-risk merchant account if;

Your credit score is below average.
Your business financial status is unstable
Your financial history has some evidence of chargebacks or fraud.
Your enterprise is newer and does not have an established financial history
The business address provided is different from where you conduct your operations.
The geographical region you operate from is high-risk.
The products and services you provide to your consumers are risky or questionable. Things like online gaming, adult entertainment, firearms, and pharmaceuticals can be classified under potential red flags.
The services and products you provide are costly

If You Are Classified under High-Risk Merchant Account, What’s Next?

It would be better financially not to be listed as a high-risk account. Various payment processors differ slightly on established standards to identify what qualifies as high-risk or low-risk merchant accounts. Some may choose to categorize you under risky merchants, while others may opt not to.

If you are labeled as a high-risk merchant account, you will most likely experience the following;

Higher transaction fees
You may be required to sign a long-term contract with your payment processor
In case of a chargeback request from a customer, you will be paying additional chargeback fees.
You have to accept automatic contract renewals or untimely termination charges
Sometimes, your processor may demand to temporarily withhold some of your sales to be better prepared in case of fraud.
Acknowledge that your processor is capable of freezing your account if they find questionable or risky behaviors in your processing.

How Can One Avoid A High-Risk Merchant Account

Indeed, there are some things you can do to avoid the high-risk merchant account’s classification. However, these interventions need to be invested over time. For example, you need to identify the steps to take to increase your credit rating and repeatedly avoid chargeback fraud. Invest in cultivating a good merchant account history with time, and the scales will sooner or later begin to favor you. For the time being, you can search for a favorable payment processor while you develop a better account history.

One example is Transcend Pay payment processors. These payment processors work with diverse financial institutions and banks to offer payment processing services that have friendly transaction fees. Transcend has the necessary tools to assist you, whether you are starting a new venture and prepared to start collecting payments, a corporation seeking more flexibility, or in a High-risk business willing to open a high-risk merchant account.

Final thoughts

There are numerous reasons why your enterprise can be classified under the high-risk account. However, if you pick a dependable payment platform to handle your high-risk account, the process becomes a lot less complicated. There are businesses with a higher likelihood of disputes. Therefore, they come with more rigid terms. However, when you allow your payments to go through a trustworthy high-risk payment processor, you can comfortably carry on with your daily activities, knowing that the chances of chargebacks and fraud are significantly reduced.

Image Credit: karolina grabowska; pexels; thank you!

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