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What is a high-risk merchant account?

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Reliable and affordable payment processing is vital to any business. For many industries – particularly those where the risks of chargebacks and fraud are high – a special type of payment processing account, known as a high-risk merchant account, is needed.

But what exactly is a high-risk merchant account? How do you know if your business needs one and what should you look for in a provider? Here, we’ll take a look at those questions in-depth and help you understand what you need to know about high-risk merchant accounts.

What is a high-risk merchant account?

A high-risk merchant account is a payment processing account for businesses traditional payment processors classify as “high-risk”. Generally, high-risk refers to a higher probability of chargebacks or fraud relative to more traditional businesses. Additionally, criteria like transaction size, industry, sales model, and order fulfillment timeframes can influence whether or not a given business is classified as high-risk.

For businesses that are classified as high-risk, securing payment processing can be costly or even completely out of reach with traditional financial institutions. That’s where high-risk payment processors – like Tailored Pay – come in. High-risk payment processors have relationships with banks and industry expertise that enable them to provide high-risk businesses with payment processing services.

Industries that need high-risk merchant accounts

One of the key drivers of whether or not a business is high-risk is the industry it is in. Industries commonly identified as high-risk and in need of high-risk merchant accounts include:

  • Collection agencies
  • Dropshipping businesses
  • Adult entertainment
  • Esports and online gaming
  • Dating websites
  • Nutraceutical and other supplements
  • Psychics
  • Moving
  • Firearms and ammunition
  • Multi-Level Marketing (MLM)
  • Website design
  • Search Engine Optimization (SEO) service providers
  • Subscription services
  • Travel businesses
  • Electronic cigarettes and vaping
  • Software as a Service (SaaS)
  • eHealth and telemedicine
  • Large ticket accounts

Of course, the list above isn’t exhaustive. So, what characteristics might make your business high-risk?

  • Bad credit- Just like in the personal finance space, businesses with bad credit – or no/limited credit history – may be classified as high-risk.
  • Free trials- If your business offers free trials that upgrade to paid subscriptions, it may be a high-risk business.
  • Recurring billing- Subscriptions and other forms of recurring billing are often labeled high-risk by traditional payment processors.
  • High-ticket sales- Selling high-cost items also means there is a higher cost associated with individual instances of fraud or chargebacks which increases the risk profile of your business.
  • High rates of fraud or chargebacks in your industry- As you might expect, if you go into an industry known for higher-than-average fraud or chargebacks, your business is likely to be labeled high-risk.

Pro-tip: If you need help determining if your business is high-risk, contact our team of experts at [email protected] or 1 (888) 599-6482! 

Pros and cons of a high-risk merchant account

Like most things in business, high-risk merchant accounts have pros and cons.

The downsides of high-risk merchant accounts stem from the increased risk to payment processors. After all, if an industry carries more risk, you can expect providers to raise prices to account for it.

So, what are the downsides from the merchant’s perspective?

  • Higher fees- All else equal, a high-risk merchant account will have higher fees than a “low-risk” account
  • Reserve requirements- Many payment processors will require high-risk businesses to keep a reserve in the account to help mitigate risk. This can tie up some cash flow and reduce short-term liquidity.

Of course, there are also upsides to high-risk merchant accounts – particularly when you partner with a respected payment processor — which include:

  • Reliable payment processing for profitable industries – Many of the industries classified as high-risk also offer the opportunity for high profits. By using a high-risk merchant account, you enable your business to collect payments in an industry that has significant upside.
  • Scalability– High-risk merchant accounts allow you to collect different types of currency and forms of payment and can scale with your business.
  • Chargeback prevention– Let’s face it, no business likes chargebacks, but they are a reality that occur regularly in high-risk industries. Chargeback prevention services can mitigate the risk to your business and give you more control over the refund process.
  • Industry expertise– Finding the right payment processing solution isn’t always easy, particularly in high-risk industries. When you choose the right payment processor, you gain a partner that can help you identify the right solutions for your niche. In the long run, this expertise can save you money and mitigate risk to your business.

What to look for in a high-risk merchant account provider

Now that you know what a high-risk merchant account is, how can you find the right provider for your business? There are a few key criteria to consider:

  • Pricing & fees- Choosing a payment processor is first and foremost a business decision. Beware of unnecessary fees and high rates that can chip away at your profit margins. We’ll go into more detail on what reasonable high-risk merchant account pricing looks like in the section below.
  • Customer service & expertise– Does the provider specialize in high-risk industries? Do they have the relationships with banks that can help get your business the best service possible? When something goes wrong, can you get in contact with a real person who can help? These intangibles can make a world of difference in finding a solution that is the right fit for your unique situation. There is no such thing as a one-size-fits-all payment processing solution and going with a generalist can cost you in the long run.
  • Security– When you choose a payment processor you are trusting them to keep your – and your customers’ – financial data secure. Be sure to only choose providers with a reputation for security that use reliable and secure payment gateways.
  • Chargeback prevention and fraud mitigation features– What level of control will the provider give you over the chargeback process? Can you be proactively alerted and choose when to dispute chargebacks? The more control and visibility a provider can offer you, the better you can manage the risk. Similarly, do they have features like 3-domain structure (3D secure) in place to help you prevent fraud?
  • Application process & speed– Will it take days or weeks for your account to get approved? Ideally, a quality provider can get your application approved in 2-3 business days. However, it is important to keep in mind there are no guarantees when it comes to account approval. The best you can do is partner with a provider that knows the industry and has a reputation for speedy service.
  • Integrations and ease of use- Can the provider’s solutions integrate easily into your website? For example, at TailoredPay our online payment gateways can seamlessly integrate with popular platforms like Shopify, Woocommerce, and Wix.

What are reasonable high-risk merchant account prices, fees, and terms?

It’s true that high-risk merchant accounts generally come with higher fees than low-risk accounts. However, you can get reasonable rates that enable you to retain more of your profits if you know what to look for. Additionally, the lower the reserves a provider requires the more cash flow you have available for your business.

At TaloredPay we believe in giving our customers the most value in the industry and have structured our pricing around that philosophy. That’s why we offer these account terms:

  • Rates starting at 2.6%
  • Daily settlements
  • No setup fees
  • No application fees
  • Quick approvals

As a result, in addition to being a leader in the space, we also offer the most flexible and competitive pricing model.

Need help finding the right payment processing solution for your business? Contact the experts!

At TailoredPay we’re high-risk merchant account and payment processing experts that have our clients’ best interest in mind. If you’d like to learn more or get started with your own high-risk merchant account, call us at 1-888-599-6482 or fill out this simple form today!

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