High-Risk Merchant Account: What Is It and When Do You Need It?

Merchant accounts are a crucial part of any e-commerce business – they are what enable online payment processing. You might have seen some offers describing them as high-risk – an adjective that initially may cause negative feelings but actually refers to the industries for which they are created. To make it clear and dispel any doubts, we describe what a high-risk merchant account is in this article. Want to learn more? Read on!

What Is a High-Risk Merchant Account?

high-risk merchant account is a specialized payment processing solution designed for businesses operating in industries that are considered high-risk by payment processors and banks. These industries often involve increased potential for chargebacks, fraud, or regulatory issues. Common examples of high-risk businesses include:

  • online gaming,
  • adult entertainment,
  • pharmaceuticals,
  • travel agencies.

High-risk merchant accounts provide businesses operating within such industries with the ability to accept online payments while managing the unique challenges associated with their niches. These accounts typically have higher processing fees and stricter underwriting requirements, but they are essential – not only because they are much more secure for the online retailers themselves but also because e-commerce platforms or payment providers often require them.

When Do You Need a High-Risk Merchant Account?

Basically, you’ll need such an account whenever your business is deemed “high-risk”. This might be because you operate in high-risk industries, such as the ones mentioned before, but it’s not the sole possible purpose. For instance, if your particular store has a high chargeback rate, your provider might decide that you’re high-risk and thus make you switch to an adjusted account.

Similarly, if your store accepts a lot of card not present transactions – without seeing the card physically – it may be qualified as a high-risk. This means that any e-commerce might need such a merchant account. Therefore, if you wish to sell your products online, you should be aware of how to choose the best high-risk merchant account, even if you’re operating in a fairly secure industry.

How to Choose the Best High-Risk Merchant Account?

First, if you’re in a high-risk industry, focus on choosing your e-commerce platform. Some give you freedom in selecting your processing method, but others might require you to choose a particular one.

An example of that may be found on WooCommerce. Businesses selling CBD products are required to pick either Square or Viva Wallet gateways.

Apart from that, you should pay attention to the following factors:

  • Fees: Fixed fees, percentage rates, chargeback and reserve fees – are they transparent, can you calculate which account will be the least expensive?
  • Risk mitigation tools: What systems are introduced to prevent fraud?
  • Reserve percentage: How much of your sales revenue is held as reserve for chargebacks?
  • Customer service: Is it available 24/7?
  • Application process: Is it simple, clear and quick?

The Takeaway

In conclusion, high-risk merchant accounts are a necessity for businesses operating in industries susceptible to fraud and chargebacks. They provide the means to accept online payments securely and efficiently. It is crucial to understand them and be prepared to use them even if you don’t operate in such an industry – your business might be deemed high-risk by your payment processor if your chargeback rates are too high or you accept too many card-not present transactions (typical for e-commerce stores).

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