Merchant accounts are the accounts businesses need to accept payments online. Merchant accounts are divided into two categories based on high-risk and low-risk depending on the degree of risk associated with the business. How to know if your business falls in the high-risk category or low-risk category and why it is important to know.
Low-Risk Business and Merchant Account
Low-risk merchant accounts are considered to have significantly lower risks. The low-risk businesses operate in low-risk countries such as the USA, European Union, Canada, Australia or Japan. These businesses operate in low-risk industries. Low-risk companies have a zero to low chargeback ratio.
It is much easier to open low-risk merchant accounts as payment processors ask for only identification proofs and business-related documents.
High-Risk Business and Merchant Account
High-risk businesses are those businesses that are prone to chargebacks and frauds. Financial institutions decide whether a business falls into the high-risk category or not, and the criteria are very subjective. High-risk companies operate in industries such as online gaming, travel, adult entertainment, drugs, e-commerce, pharmaceuticals etc.
To take high-risk merchant account services, a business needs to go through extra scrutiny by merchant service providers
What Happens When Your Business is Considered High Risk
Despite the business being categorised as high-risk, a merchant can still accept credit card payments. The banks or payment processors charge higher processing rates and demand reserve on a business’ credit handling. Some merchant services providers may even refuse to work with you.
What is a High-Risk Merchant Account
High risk merchant accounts services enable payment processing for businesses deemed to have higher risks. In high-risk companies, the card not present transactions are the norm. The reasons due to which a merchant needs high risk merchant services in USA are-
- Business Geographical Location
- Model of business and its size.
- Type of Industry
- High chargeback ratio
- Poor credit history
- Reasons for closing a merchant account if previously held
- Multiple currencies accepted
- High Volume of business
A high-risk merchant account services should be opened when the chargeback ratio is over one per cent of transactions to avoid suspension of the account.
Features of a High-Risk Merchant Account
Though there are several merchant account providers in the market, select one with expertise in handling high-risk credit card payment processing. The payment processor should have the following features:
- Transparent and Reasonable Rates
Fees and rates charged by the payment processor should be transparent, and there should not be any hidden costs or additional charges. The rates should be clearly mentioned on the merchant service provider’s site.
- Customer Support
Ensure that the provider of high-risk merchant services in USA offers support 24/7 and addresses and resolves all the issues as soon as they arise. Any problems with the payments will directly impact your business so ensure the high-risk merchant account services provider is responsive and has live customer support.
- Adaptability and Customisation
The payment solutions offered by merchant account service providers should be tailored to the specific needs of your business.
- Multi-Currency Processing
The payment processor should enable you to accept multiple currencies and should process all credit and debit cards.
- Extensive Banking Network
The merchant service provider should give access to an extensive network of acquiring banks in the USA and internationally that are willing to do business with high-risk industries.
- High Volume Card Processing
If you have a high-volume business, then look for merchant services providers that provide you with a high credit card processing capacity so that you can easily manage and grow your business.
- PCI DSS Compliant High-Risk Payment Gateway
PCI DSS compliant payment processor gives you security and safeguards the interests of your business and customers.
Documents Required for Opening a High-Risk Merchant Account in the USA
Typically a merchant never directly contact a bank for opening a merchant account for their business in the United States to process credit card transactions. They contact firms that offer high risk merchant services in USA to act as intermediaries between merchants and bank. It helps merchants to get funding from banks against legal transactions and deal with fraudulent card transactions with their guidance.
To open high-risk merchant accounts, you need:
- Registered business name in USA
- USA bank account
- The physical address of the merchant
- Application form
- Business license
- Incorporation proofs
- W-9 form
- Void Check
- Personal guarantee
The financial institutions follow no one standard criteria to classify high-risk businesses, but they all consider chargebacks, frauds and risk involved with the company. Some payment processor might be more open to working with all high-risk industries; others might not.