A high risk credit card merchant account is a merchant account or payment processing agreement that is tailored to suit a business which is deemed high-risk or is operating in an industry that has been deemed as such. These merchants usually must pay higher fees for merchant credit card accounts, which can add to their expense of business, affecting profitability and Return on investment, especially for businesses that were re-classified as a high risk industry, and were not prepared to deal with the costs of operating as a high risk merchant. Some companies specialize in working specifically with high risk merchants by giving competitive rates, faster payouts, and/or lower reserve rates, all of which are made to attract companies which are having difficulty finding a location to work.
Businesses in a number of industries are called ‘high risk’ due to the nature with their industry, the method in which they operate, or a variety of additional factors. For instance, all adult businesses are regarded as high risk operations, as well as travel agencies, auto rentals, collections agencies, legal offline and web-based gambling, bail bonds, and a variety of other online and offline businesses. Because working with, and processing payments for, these companies can carry higher risks for banks and financial institutions they may be obliged to sign up for any high risk credit card merchant account that has a different fee schedule than regular merchant accounts.
A merchant account is a bank account, but functions more like a line of credit which allows a company or individual (the merchant) to get payments from credit and debit cards, employed by the consumers. The bank that provides the credit card merchant account is known as the ‘acquiring bank’ as well as the bank that issued the consumer’s charge card is referred to as the issuing bank. Another significant element of the processing cycle are definitely the gateway, which handles transferring the transaction information through the consumer to the merchant.
The acquiring bank may also offer a payment processing contract, or the merchant may need to open a higher risk processing account with a dangerous payment processor who collects the funds and routes these to the account at the acquiring bank. Within the case of a high-risk merchant account, you can find additional worries concerning the integrity of the funds, and the possibility that this bank may be financially responsible within the case of any problems. For this reason, high risk merchant accounts frequently have additional financial safeguards in position, including delayed merchant settlements, wherein the bank holds the funds for a slightly longer period to offset the potential risk of fraudulent transactions. Another approach to risk management is using a ‘reserve account’ that is a special account on the acquiring bank in which a portion (usually 10% or less) from the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not interest-bearing, and the monies using this account are returned towards the merchant on the standard payout schedule, when the reserve time has gone by.
Payments to a high-risk credit card merchant account are deemed to hold an elevated risk of fraud, as well as an increased risk of chargeback, refund, or reversal. For example, someone may make use of a stolen or forged credit or debit card to help make purchases, or a consumer might make an effort to execute an advance-authorization transaction (like renting an automobile or reserving a hotel), using a leayte card with insufficient funds. This increases the risk for the bank and also the payment processor, because they will suffer from the administrative fallout of coping with the fraud. Ecommerce can also be a risk factor, because businesses do not actually see an imprint charge card; they take orders over the Internet, and also this can up the risk of fraud considerably.
Each time a merchant applies to get a merchant account with a bank, payment processor, or some other credit card merchant account provider, there are numerous considerations before settling on a particular merchant provider. It is often possible to negotiate lower rates, then one should always request multiple quotes before choosing which high risk credit card merchant account provider to use for their processing needs.