An increased risk merchant account can be a credit card merchant account or payment processing agreement that is tailored to match an organization which happens to be deemed dangerous or perhaps is operating in an industry that has been deemed therefore. These merchants usually must pay higher fees for merchant services, that may add to their expense of business, affecting profitability and ROI, particularly for firms that were re-classified as a very high risk industry, and were not prepared to handle the costs of operating like a dangerous merchant. Some companies focus on working specifically with high risk merchant services provider by giving competitive rates, faster payouts, and/or lower reserve rates, which are meant to attract companies that happen to be having difficulty locating a destination to conduct business.
Businesses in many different industries are labeled as ‘high risk’ due to the nature of their industry, the approach by which they operate, or many different other variables. As an example, all adult businesses are thought to be dangerous operations, as are travel agencies, auto rentals, collections agencies, legal offline and internet based gam-bling, bail bonds, and a variety of other online and offline businesses. Because working together with, and processing payments for, these firms can hold higher risks for banks and finance institutions they may be obliged to sign up for a high risk credit card merchant account that has a different fee schedule than regular merchant accounts.
A merchant account is really a bank account, but functions more like a line of credit that allows an organization or individual (the merchant) to get payments from credit and debit cards, made use of by the consumers. The bank that provides the processing account is called the ‘acquiring bank’ along with the bank that issued the consumer’s charge card is named the issuing bank. Another significant part of the processing cycle are definitely the gateway, which handles transferring the transaction information through the consumer on the merchant.
The acquiring bank could also provide a payment processing contract, or maybe the merchant may need to open a very high risk merchant account having a high risk payment processor who collects the funds and routes those to the account in the acquiring bank. With regards to a very high risk credit card merchant account, there are actually additional worries about the integrity of the funds, as well as the possibility the bank can be financially responsible when it comes to any problems. For that reason, high risk merchant accounts frequently have additional financial safeguards set up, including delayed merchant settlements, wherein the bank supports the funds for any slightly longer period to offset the risk of fraudulent transactions. Another approach to risk management is the use of a ‘reserve account’ that is a special account with the acquiring bank where a portion (usually 10% or less) in the net settlement amount is held to get a period usually between 30 and 180 days. This account may or may not be interest-bearing, along with the monies with this account are returned on the merchant around the standard payout schedule, when the reserve time has gone by.
Payments into a high-risk credit card merchant account are deemed to carry an elevated risk of fraud, and an increased risk of chargeback, refund, or reversal. As an example, someone could use a stolen or forged debit or credit card to make purchases, or possibly a consumer might attempt to execute an advance-authorization transaction (like renting a car or reserving a hotel), utilizing a debit card with insufficient funds. This raises the risk for that bank and also the payment processor, as higrisk will need to handle the administrative fallout of coping with the fraud. Ecommerce can even be a risk factor, because businesses do not actually see an imprint credit card; they take orders on the internet, and that can up the danger of fraud considerably.
Each time a merchant applies for any processing account using a bank, payment processor, or some other merchant account provider, there are several factors to consider before settling on a particular merchant provider. It is usually possible to negotiate lower rates, then one should always request multiple quotes before choosing which heavy risk merchant account provider to use for their processing needs.