A higher risk credit card merchant account is a processing account or payment processing agreement that may be tailored to match a company which happens to be deemed heavy risk or is operating within an industry which has been deemed as such. These merchants usually have to pay higher fees for merchant services, which can enhance their price of business, affecting profitability and ROI, particularly for businesses that were re-classified as a higher risk industry, and were not prepared to deal with the costs of operating as a dangerous merchant. Some companies specialize in working specifically with high risk merchant services provider by giving competitive rates, faster payouts, or lower reserve rates, which are designed to attract companies that happen to be having trouble choosing a location to do business.
Businesses in a range of industries are defined as ‘high risk’ as a result of nature of their industry, the technique by which they operate, or a number of additional factors. For instance, all adult companies are considered to be high-risk operations, as are travel agencies, auto rentals, collections agencies, legal offline and web-based gam-bling, bail bonds, and various other offline and online businesses. Because dealing with, and processing payments for, these companies can carry higher risks for banks and finance institutions these are obliged to sign up for a higher risk processing account that features a different fee schedule than regular merchant accounts.
A processing account is really a banking account, but functions much more like a credit line that allows an organization or individual (the merchant) to receive payments from credit and debit cards, made use of by the consumers. The lender which offers the merchant account is called the ‘acquiring bank’ along with the bank that issued the consumer’s visa or mastercard is called the issuing bank. Another important component of the processing cycle are definitely the gateway, which handles transferring the transaction information in the consumer to the merchant.
The acquiring bank may also give a payment processing contract, or the merchant should open a very high risk processing account with a heavy risk payment processor who collects the funds and routes these people to the account in the acquiring bank. In the case of a high risk merchant account, there are actually additional worries concerning the integrity of your funds, and the possibility the bank could be financially responsible in the matter of any problems. For this reason, heavy risk merchant accounts often times have additional financial safeguards into position, including delayed merchant settlements, in which the bank supports the funds for the slightly longer period to offset the danger of fraudulent transactions. Another approach to risk management is utilizing a ‘reserve account’ and that is a special account in the acquiring bank where a portion (usually 10% or less) in the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not be interest-bearing, and also the monies with this account are returned to the merchant about the standard payout schedule, once the reserve time has passed.
Payments to a high risk credit card merchant account are deemed to handle a heightened likelihood of fraud, as well as an increased risk of chargeback, refund, or reversal. By way of example, someone could use a stolen or forged debit or credit card to produce purchases, or possibly a consumer might attempt to execute an advance-authorization transaction (like renting a vehicle or reserving a hotel), by using a debit card with insufficient funds. This improves the risk for your bank and also the payment processor, as higrisk will need to handle the administrative fallout of coping with the fraud. Ecommerce can even be a risk factor, because businesses will not actually see an imprint credit card; they take orders over the Internet, and that can up the potential risk of fraud considerably.
Every time a merchant applies for the credit card merchant account by using a bank, payment processor, or another processing account provider, there are several factors to consider before settling on the particular merchant provider. It is often possible to negotiate lower rates, and something should request multiple quotes before choosing which high risk processing account provider to use for their processing needs.