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What Is a High-Risk Merchant Account?

Posted on 6 June, 2016

According to The Nilson Report, losses due to credit card fraud totaled $16.31 billion in 2014. That was up 19 percent from 2013, and it was the fourth consecutive year when the cost of credit card fraud grew more quickly than credit card purchases did.

Who foots the bill for credit card fraud? It’s almost never the perpetrator. Sometimes, it’s the card holder. More often, it’s the merchant, but if the retailer can’t cover its losses, the merchant account provider is left holding the bag. That’s why banks and financial institutions analyze each applicant’s qualifications to decide whether they will be more likely to make or lose money on a new account. If you’ve been turned down by multiple providers, your only option for credit card processing may be a high-risk merchant account.

What Is a High-Risk Merchant Account?

What Is a High-Risk Merchant Account?

Image via Flickr by Sean MacEntee

A high-risk merchant account allows businesses to accept credit and debit card payments even if the provider expects a high number of chargebacks. In return, the provider may charge a higher rate and set additional conditions.

How Does the Merchant Account Provider Decide Whether a Business Is High-Risk?

When you apply for a merchant account, the provider could determine that your business has a high risk of fraud and chargebacks based on the following. Your industry or the items you sell, your personal credit history, or the length of time you’ve been in business. — Or simply because it doesn’t trust your marketing strategy.

The rules for deciding you’re high-risk aren’t set in stone and can vary by provider, but here are some businesses that are typically considered risky:

  • Brand-new businesses, emerging industries, or businesses with past credit problems
  • Questionable services like gambling, escort services, and psychic hotlines
  • Industries with high chargeback histories, like travel services, health products, or electronic cigarettes
  • Online sales, including e-commerce sites, eBay sales, and Amazon stores

What Can I Expect From a High-Risk Merchant Account?

With a high-risk merchant account, you’ll be able to process credit and debit cards just like any other business, but it’ll cost you more in transaction fees, periodic fees, and incidental charges. Read your contract carefully to make sure you understand everything you’re required to pay and why.

Find out up front whether a rolling reserve is required. This strategy attempts to reduce the overall risk by holding back a percentage of your gross sales to make sure you have enough funds in your account to cover chargebacks if your sales drop or that you go out of business. This protects the provider, but it can be a struggle for some businesses to stay afloat when 10 percent of their gross sales is held back.

As the world’s economy becomes increasingly cash-free, the ability to process card payments is more important than ever to your business’s financial success. If you don’t qualify for a traditional account, a high-risk merchant account could be the answer. Choose carefully, finding out everything you can about the terms and conditions before you commit to any provider.


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Bad credit merchant account credit card processing services

Accept all major credit cards

Regardless of Credit History!