- February 13, 2020
- Posted by: admin
- Category: high risk merchant account provider, Uncategorized
There are several reasons why a processor might label a merchant as ‘high risk.’ Some characteristics that identify high risk businesses are superficial factors based on the business’s industry or clientele, while others are directly related to the merchant’s business practices.
If you run an online business with a higher risk of chargebacks and want to process credit card transactions, that’s when you need a high-risk merchant account. So what is a high-risk merchant account and how do you know you need one?
Also the products or services you sell might also reflect badly on your risk profile. Here are few of the high risk products and industries usually flagged by processors include (but are not limited to):
- Online gambling or casinos
- VOIP or telemarketing
- Pharmaceuticals or drug stores
- Adult materials, products or services
- Airline tickets
- Bitcoins or Forex trading
- Dating services
- Magazine subscriptions
- E cigarettes
- Computer software or hardware
Banks and merchant account providers consider a business as high risk due to a considerable high level of charge backs, a merchant receives credit card payments, but customers cancel transactions; refunds and returns and also credit card fraud. Also banks view companies that have bad credit histories (late paying bills) or that provide no collateral for loans as high risk. Also, companies in industries that have high numbers of fatal or nonfatal accidents are high risk.
Who needs a high-risk merchant account?
Let’s take an example of high-risk businesses is the travel industry, as there are various factors there that can cause cancellations. This usually ends up with a large number of refunds and customers who file chargebacks. Few others are gambling, forex trading, and adult-themed websites, etc
The more chargebacks a business comes with, the greater the risk. Hence, the main factors that matter are industry reputation and processing history (your chargeback ratio should be lower than 0.9% of your total transactions).
So if you run a business in the industries mentioned above or similar, you will definitely need a high-risk merchant account to accept credit card payments on your website.
The pros and cons of a high-risk merchant account:
One of the most common disadvantages of high-risk merchant accounts is that you need to pay really higher fees and processing rates. It’s because of a higher risk. Also note that banks might request a reserve.
These are definitely businesses with a higher chance of disputes, so it’s obvious that they come with stricter terms. However, when you accept payments through a reliable high-risk payment processor that keeps security at the forefront, you can be rest assured that the risk of chargebacks and fraud will be minimized.
What do banks want from high risk businesses:
There are exceptions, however the majority of commercial loan applications require a business plan document.
Business’s financial details:
Business’s financial details includes all current and past loans and debts incurred, all bank accounts, investment accounts, credit card accounts, and of course, supporting information including tax ID numbers, addresses, and complete contact information.
Complete details on Accounts Receivable:
This includes account-by-account information (for checking their credit), aging and sales and payment history.
Complete details on Accounts Payable:
This includes credit references, companies that sell to your business on account that can vouch for your payment behaviour.
Complete financial statements, preferably audited or reviewed:
Having statements reviewed is actually a lot cheaper, more like a thousand dollars, because the CPAs who review your statements have way less liability if you got it wrong. Banks usually will not require audited or even reviewed statements because they always require assets at risk, collateral so they care more about the value of the assets you pledge.
All of your personal financial details:
That includes social security numbers, net worth, details on assets and liabilities such as your home, vehicles, investment accounts, credit card accounts, auto loans, mortgages, the whole thing.
Banks will often ask newer businesses that depend on the key founders to get insurance against the deaths of one or more of the founders.
Copies of past returns:
This is to prevent multiple sets of books, but banks want to see the corporate tax returns.
Agreement on future ratios:
Most of the commercial loan include what we call loan covenants, in which the company agrees to keep some key ratios.
Here’s what you need before you apply for a high-risk merchant account:
- Incorporation certificate
- copy of your passport and utility bill
- Latest business and personnel bank account statements
- processing history for the last 6 months (total volume, number of transactions, chargeback percentage)
- Domain ownership
How do I apply for a high-risk merchant account?
To get a high-risk merchant account, you need to fill out an online application. Also, to accept card payments you also need to find a reliable high-risk payment processor.
The process of applying for a high-risk merchant account is really short and simple. For instance, if you choose iPayTotal as your payment partner, we will help you find a bank that matches your business needs. Once your business is approved by the acquiring bank, you can start processing payments online instantly.