Understanding high-risk merchant accounts: 4 steps

4 Ways to Understand High Risk Merchant Accounts 825x500 1

You may not be aware that your enterprise merchant account can be considered a high-risk account. Customers’ debit and credit card transactions will be processed by providers, who will then deposit the funds into a designated bank account. Per transaction, a fee is deducted.

But not all businesses pay the same fees. There are two types of accounts that these payment processors classify businesses into; high risk and low risk accounts

Merchant accounts that are considered to be high-risk

Your merchant account will fall into one of two categories: high-risk or low-risk. Many people believe that high-risk accounts have an increased risk of fraud and chargebacks. In order to better protect themselves in case of chargebacks or fraud, higher-risk companies pay higher processing fees.

The following information should be reviewed if your processor has classified you as a high-risk account.

What is a High-Risk Merchant Account and how can it be defined?

Payment processors classify high-risk merchant accounts as those with a higher probability of fraud or chargebacks. As a result, you’ll have to pay processing fees to accept debit and credit card transactions from your customers. Low-risk merchant accounts offer a great deal of flexibility in terms of usage. It is possible to negotiate pricing and processing fees.

If you fall into this category, payment processors will review your tax information, credit report, and business financials to determine if you are a high risk customer.

The factors that payment processors use to determine whether a merchant account is high risk

The factors that payment processors use to determine whether a merchant account is high risk

A high-risk merchant account can be identified if;

Your credit score is below the national average, according to TransUnion.
Instability in your business’s financial position
Chargebacks or fraud have appeared in your financial history.
Your business is relatively new and does not yet have a track record of financial performance.
The address provided for your business is different from where you actually operate.
You operate in a high-risk area.
There are risks or doubts about the products and services that you provide to your consumer base. As pot, we can classify things like adult entertainment, adult gaming, firearms, and pharmaceuticals.

What Happens If Your Merchant Account Is Classified as a High-Risk Account?

Not being listed as a high-risk account would be financially beneficial. Merchant accounts classified as high-risk or low-risk by payment processors differ slightly. Other merchants may decide not to classify you as a risky merchant, while others may decide to do so.

A High-Risk Merchant Account: What Can You Do to Avoid It?

There are things you can do to avoid being classified as a high-risk merchant account. However, these interventions must be carried out over a long period of time. Example: You must identify the steps necessary to improve your credit rating and consistently avoid chargeback fraud, and then take those steps. Investment in building a good merchant account history over time will pay dividends in the end. While you establish a better account history, you can look for a payment processor that suits your needs.

Transcend Pay, for instance, is a payment processor. In order to accept payments, these payment processors partner with a variety of financial institutions and banks

Thoughts for the day

For a variety of reasons, your business could be classified as high-risk. To make the process easier, you’ll want to choose a payment platform that’s known for its reliability. Disputes are more common in certain types of businesses. As a result, they have stricter conditions. You can, on the other hand, carry on with your daily activities knowing that the chances of chargebacks or fraud are greatly reduced when your payments are processed through a high-risk payment processor.

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About the Author: Jon Henley