High-Risk Merchant Accounts
You’ve probably heard of the cost if you are considering opening a
high-risk merchant account. This article will cover the benefits and costs of a high-risk merchant account. You may also wonder if high-risk merchant accounts are right for your business. After all, having a high-risk merchant account doesn’t mean you’re a harmful or dangerous business. However, if you’re in a high-risk industry, you’ll be more susceptible to fraud and chargebacks, so that this account may be correct.
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High-Risk Merchant Accounts: Low-Risk Industries
Several industries are considered high-risk. These industries are at a higher risk for chargebacks, fraud, and returns. Financial institutions look for industry-specific data to determine whether or not working with you is a good investment. For example, businesses on the MATCH list may have minimal credit card processing experience.
Some high-risk industries have a high chargeback ratio, higher returns, and higher refunds than average.
Unlike high-risk industries, low-risk industries are not automatically harmful to merchant accounts.
Many processors support low-risk businesses, but high-risk industries may require special processing.
For example, a sugar-coating company may not be a high-risk industry but will require higher payment processing fees and a more expensive merchant account.
High-risk businesses may also be high-risk because they accept recurring payments and sell to countries with high fraud rates. The payment processors determine risk based on several factors. Some industries are automatically categorised as high-risk, and others may not. However, there are some critical characteristics of a high-risk industry. In most cases, the higher the chargeback ratio, the higher the risk of account termination. In addition to low-risk industries, businesses in high-risk industries tend to have a high chargeback ratio and are at high risk due to fraud or problematic products.
High-Risk Merchant Accounts: Chargebacks
You might wonder: Does it hurt a business to experience chargebacks? It doesn’t necessarily. A chargeback is a legitimate remedy when a consumer purchases a product that turns out to be defective or a duplicate of the original. While chargebacks can frustrate a merchant and cause a protracted battle between the buyer and seller, they’re not the end of the world. If a customer files a chargeback, they will likely do so again.
While most businesses would like to prevent chargebacks, it may not be in their best interest to do so if a business doesn’t fight them.
Not only is the chargeback process lengthy, but it’s also a lot of work.
Many small businesses don’t have the time to invest in fighting every chargeback.
Moreover, chargebacks aren’t necessarily a sign of a bad business because they aren’t always dishonest disputes. Many times, chargebacks are simply an innocent mistake made by a customer. For example, a merchant may accidentally leave the business’s name on the bank statement, a common cause of chargebacks. The credit card issuing bank will initiate a chargeback when a customer disputes a charge.
The chargeback is often an honest mistake, such as double-charging a customer. Another possible reason for chargebacks is fraud. Fraudulent activities like this have become rampant in recent years. While this isn’t a guarantee that a business is doing something wrong, it’s always better than not attempting to resolve a dispute.
High-Risk Merchant Accounts: Prone to Fraud
Some of the highest-risk industries are healthcare, manufacturing, and agriculture. These industries have high levels of corruption, making them highly vulnerable to fraud. For example, health care is prone to corruption, while agriculture leads the nation in fatal accidents and nonfatal injuries. According to the High-Risk Expert, healthcare and agriculture are among the highest-risk industries. Here are some common fraud types in each industry.
To avoid falling victim to these types of fraud, ensure you have a firm insurance policy and keep your business and personal information safe. Many companies are aware of the high risk that comes with this type of industry. Some industries have a high risk because of their electronic payment volume, which does not verify a consumer’s identity. Additionally, businesses heavily dependent on electronic banking tend to have more chargebacks than other industries, so it’s easy for criminals to layer information.
Other high-risk industries include:
Trust and company services.
Occupational Safety and health administration (OSHA) standards apply to companies in these industries. Businesses must also implement a buddy system in hazardous waste clean-up operations, requiring two employees to work closely together.
Further, employees should have the proper training to handle hazardous waste safely. Insurance and healthcare providers are among the highest-risk industries, with approximately 40% of all fraud cases occurring in this industry. Educational institutions are particularly vulnerable to insurance and expense reimbursement fraud, and skimming and payroll are common in this industry. In addition to healthcare, many other industries are high-risk, and the higher the risk, the greater the risk. There is a need for high-risk ISOs in these industries.
High-Risk Merchant Accounts Cost
Depending on your industry, high-risk merchant accounts may have different rates and fees than traditional merchant accounts. If your business is not profitable or has high-risk transactions, you may find it difficult to negotiate with payment processors at a lower rate. Nonetheless, many high-risk merchant account providers offer competitive rates. If your industry is high-risk, consider a high-risk payment processor that specialises in the industry. High-risk merchant accounts come with higher fees and risk margins. These merchant accounts require extra scrutiny from credit card issuers and banks. Because of this, these merchant accounts tend to cost more than regular merchant accounts.
Each provider calculates its fees differently, but you can negotiate the costs and terms of service. Most companies charge between £260 and £500 for a high-risk merchant account. Generally, fees for high-risk accounts are higher than for standard merchant accounts. It would help if you considered the risk factor and industry before deciding. Process of applying for a high-risk merchant account If you’re interested in setting up a merchant account for a high-risk business, you’ll need to fill out a high-risk merchant account application.
However, if your business is profitable, you can opt for a high-risk account if you can afford it. You can opt for a low-risk merchant account if your chargeback rates are too high. There are many ways to minimise the risk of high-risk merchants. A payment processor can analyse your past financial patterns and business model. In addition, they may check your business history, partnerships, and personal credit.
These factors may contribute to a high-risk merchant account rate. A high-risk merchant account may also be subject to an annual or monthly fee. And in addition to high fees, high-risk merchant accounts may come with a rolling reserve, which holds income until a payment processor can verify that it’s a legitimate transaction. Contact your payment processor’s sales representative or visit their website to determine the exact cost of high-risk merchant accounts.
This application includes your business and personal information, such as your tax identification number and company name. Some high-risk merchant account application forms also require you to provide copies of business licenses or owner’s licenses. The process for a high-risk merchant account varies by provider, but most will take two to ten business days to approve. The approval time can extend to two or three weeks, depending on the number of high-risk merchant account applications. It will also depend on the company’s resources and whether the bank is reviewing many new applications. Internal audits, regulatory changes, and a rush of new applications can slow the process.
Still, your high-risk merchant account provider will keep you informed of the progress and will inform you of any delay. To apply for a high-risk merchant account, you must first determine the region in which your business will be selling its products and services. If your business sells internationally, applying for an EU merchant account will likely result in higher charges. These fees can range from £20 to £100 per transaction, and you will need to remember that a high-risk merchant account is not sustainable for businesses that do business internationally.
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