A high risk merchant account is a merchant account or cost processing agreement that’s tailored to fit a business which is deemed high risk or is working in an industry that has been deemed as such. These retailers usually need to pay higher charges for service provider providers, which can add to their cost of enterprise, affecting profitability and ROI, especially for firms that had been re-categorised as a high risk industry, and were not prepared to deal with the prices of operating as a high risk merchant. Some companies concentrate on working specifically with high risk merchants by providing competitive rates, faster payouts, and/or lower reserve rates, all of which are designed to attract firms which are having problem finding a place to do business.

Businesses in a variety of industries are labeled as ‘high risk’ because of the nature of their business, the strategy in which they operate, or a wide range of different factors. For instance, all adult companies are considered to be high risk operations, as are journey companies, auto rentals, collections businesses, authorized offline and online gaming merchant accounts playing, bail bonds, and a variety of different on-line and offline businesses. Because working with, and processing funds for, these firms can carry higher risks for banks and financial establishments they’re obliged to enroll in a high risk service provider account which has a special fee schedule than regular merchant accounts.

A merchant account is a bank account, however capabilities more like a line of credit which allows a company or individual (the service provider) to receive payments from credit and debit cards, used by the consumers. The bank that gives the service provider account is called the ‘buying bank’ and the bank that issued the consumer’s credit card is called the issuing bank. One other important element of the processing cycle are the gateway, which handles transferring the transaction information from the buyer to the merchant.

The buying bank may additionally offer a fee processing contract, or the service provider could need to open a high risk service provider account with a high risk cost processor who collects the funds and routes them to the account on the acquiring bank. Within the case of a high risk service provider account, there are additional worries in regards to the integrity of the funds, and the likelihood that the bank could also be financially responsible within the case of any problems. For this reason, high risk merchant accounts typically have additional monetary safeguards in place, comparable to delayed service provider settlements, in which the bank holds the funds for a slightly longer period to offset the risk of fraudulent transactions. One other method of risk management is the use of a ‘reserve account’ which is a special account on the acquiring bank where a portion (often 10% or less) of the net settlement amount is held for a period often between 30 and one hundred eighty days. This account could or may not be interest-bearing, and the monies from this account are returned to the service provider on the standard payout schedule, as soon as the reserve time has passed.

Payments to a high risk service provider account are deemed to hold an elevated risk of fraud, and an elevated risk of costback, refund, or reversal. For example, somebody could use a stolen or cast credit or debit card to make purchases, or a client would possibly try to execute an advance-authorization transaction (like renting a automobile or reserving a hotel), using a debit card with inadequate funds. This increases the risk for the bank and the payment processor, as they will have to cope with the administrative fallout of dealing with the fraud. Ecommerce will also be a risk factor, because companies don’t truly see an imprint credit card; they take orders over the Internet, and this can up the risk of fraud considerably.

When a merchant applies for a merchant account with a bank, cost processor, or different merchant account supplier, there are many factors to consider before deciding on a specific merchant provider. It’s often attainable to barter decrease rates, and one should all the time request a number of quotes before choosing which high risk service provider account supplier to use for his or her processing needs.

Bobby Elliott
info@carbonrabbit.com