Being a high-risk merchant invites a lot of concerns especially when you go to apply for merchant services. It includes processing fee, chargeback rates, set-up fees, etc. Although these fees can become overwhelming, still if you want to give a range of payment options to your customers there will be some fees which you being a high-risk merchant will have to pay.
Having said that if you are on your way to opt for merchant account services, do know the whereabouts of your money that you will be investing in. If you are not sure about the fees and other charges being involved in a high-risk merchant account, then this guide is for you.
Understanding merchant account fees
If a high-risk merchant wants to accept cashless payments meaning payments done by debit and credit cards, such merchant must opt for a merchant account. When a buyer buys a product and completes the transaction using his or her debit/credit card, usually it takes some time to authorize that transaction. Once it gets authorized, the payment is released. However, when you have a merchant account, the merchant account service provides will allow the seller to get faster access to the transaction by storing it into their account and later retrieving the payment from the customer’s bank. Now, in order for this particular service, the service provider charges a fee.
Along with the regular charges for each and every transaction that takes place, the service provider may also charge you a monthly fee and a chargeback fee.
What are the different kinds of High-Risk Merchant Account Fees Applicable?
Readers may note that the higher the risk a merchant account is, the more fees the merchant will have to bear. This is simply because your business is considered to be risky in the market and hence are the chances of being more expensive than the rest of the e-commerce business.
Following are some of the fees that will be charged:
- Set-up fee
The first fee that you will have to pay is the set-up fee. Once the merchant account service provider accepts you as a merchant, the first fee that you will have to pay them is the set-up fees. The set-up fees will, however, vary from service to service. But on average it will be up to thousands. Some high-risk merchant account service provider may offer to waive off the set-up fee to attract new client or reduce the amount, but our suggestion is to read the contract properly. Go through it and see if the contract includes an account termination fee.
- Capture fees
High-risk merchant account provider will give you a terminal through which you will be able to get the card information. Now, this again differs. But on average, you can expect to pay anywhere between $50 to hundreds of dollars. The amount differs based on your pre-empted value. You will be given a limited number of transactions by the provider, once you cross the limit, the provider will charge you extra for every transaction which is over the limit.
- Transactional Fees
As the name suggests, whenever a transaction happens there will be a charge that you will have to pay. The provider may give you two options for transactional fees or might have any one of the options. It will be a) percentage-wise, for example 2.19%, 0.25 %, or even 2%, b) per-item dollar amount, for example, $0.20, $0.0195). Also, sometimes both of these charges are applied on transaction fees.
- Schedule Fees
Along with transactional fees, you will also be charged a few flat fees too. Their names on your statement will, however, vary depending on their applicability as well as value, but some items will definitely show as it is on your monthly statement.
- Terminal fees– In case if you have a physical shop and you use credit card terminal to process every credit card payment, then you will have to pay something called terminal fees.
- Payment Gateway Fees– Just like a physical terminal, a payment gateway fee is liable for using the online terminal to accept credit card transactions.
- PCI Fees– A fees which go directly to the payment gateway industry.
- Monthly annual fees- These fees are charged by the MSP either annually or monthly. These fees include the services provides by your merchant, for instance maintaining your account, setting it up, and for customer care service.
- Incidental Fees
The schedule charges will always be applicable, however, incidental fees, as the name suggests, are not regular, but is charged when you have a chargeback fee. This doesn’t happen regularly and hopefully, there won’t be any chargeback fees as well.
- Address verification service- To prevent online credit card fraud merchants often look for AVS service and this service protects your business from potential frauds.
- Chargeback fees- In case a buyer files for a chargeback and asks the bank to dispute the charges, a chargeback fee is charged.
- Batch Fee- This will be charged when you will submit a batch of a transaction.
- NSF fee- NSFE, in other words, a non-sufficient fee is charged only when you fail to cover your merchant expenses.
What are the different types of reserve?
If your business is considered to be high-risk in nature, the provider will ask you to keep a reserve. Well, there are three kinds of reserve:
- Rolling Reserve- A rolling reserve is something which your bank follows. It is a risk management strategy. They secure this strategy to protect themselves from risks, such as chargebacks, fraud cases and other cases which can incur a loss.
- Up-Front Reserve- In case if you are new or have lesser qualifying factors, then some merchant service providers may ask you to submit an up-front reserve. Based on the expected volume, an up-front reserve will be the cash that must be set into the escrow towards the starting of the processing agreement.
- Fixed or Capped Reserve- A caped reserve count will hold a certain level of every credit card deposit until a capped or a fixed sum is reached.
Every merchant service provider or a credit card company will have a different set of costs which are associated with using their service. Some charges are available, but some are compulsory to pay. It takes a lot for the MSPs to keep your account running. A high-risk merchant account is usually considered to be risky because these type of accounts have higher chances of incurring losses and hence there are so many fees associated.
Although, you can speak to the merchant account provider and bargain over a few charges, be alert and do read every piece of the document before signing the contract.