Is your business facing hurdles in securing a typical merchant account, labeled as high risk by financial institutions? In such a scenario, your choices become limited, and the cost of regular credit card processing tends to surge.
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Unveiling the Mystery of High-Risk Merchant Accounts
A high-risk merchant account is essentially a specialized open banking payment gateway service tailored for businesses that banks perceive as riskier compared to conventional accounts. This perception stems from factors such as a high incidence of financial instability, chargebacks, a history plagued by fraudulent activities, a less-than-ideal credit history, and various other elements that we will delve into further in this article.
For businesses categorized as high risk, the path to obtaining merchant services is not a straightforward one. It typically involves accepting the reality of incurring higher fees and subjecting themselves to heightened scrutiny. This is primarily a response to the inherent risks associated with these businesses. To illustrate the extent of caution exercised, when a high-risk business has a track record marked by a substantial number of refunds and chargebacks, a merchant bank may decide to impose a rolling reserve.
Determining the Necessity of High Risk Payment Processing for Your Business
When you set out to secure a merchant account for your business, it’s essential to grasp the pivotal role that risk assessment plays in this process. Financial institutions that provide you with a merchant account will closely examine the potential risks associated with your business activities.
The Spectrum of High-Risk Industries
High-risk merchant accounts cater to a broad spectrum of industries that are traditionally seen as carrying higher degrees of risk. These industries encompass a wide range of activities, including charitable organizations, companies within the travel and tourism sector, insurance firms navigating complex financial transactions, businesses engaged in affiliate marketing and plenty more.
The Path for ‘High Risk’ Businesses
For businesses operating within these high-risk sectors, obtaining a conventional merchant account can be a challenging endeavor. If your business has previously encountered rejection when seeking account services from a standard bank, a high risk payment processing merchant account can provide a lifeline, allowing you to continue your operations without undue hindrances.
Evaluating High-Risk Status: A Closer Look
When it comes to assessing the level of risk associated with partnering with a high-risk merchant, financial providers employ a thorough examination process that delves into both the specific business and the industry it operates within. This assessment leads to the allocation of a designated merchant category code, which serves as a marker for the business’s risk profile.
Key Factors in Evaluating High-Risk Status
Business Tenure
The number of years a company has been in operation is a primary consideration. Generally, the younger the company, the higher the perceived risk. This reflects the idea that established businesses may have a track record to demonstrate their stability.
Financial Stability
The financial health of the business is a critical element in the risk assessment. A financially stable company is often seen as a lower risk, while financial instability can elevate the perceived risk level.
Income Channel Dynamics
The method by which the business generates income is a significant determinant. For example, businesses relying on subscription-based income models may be perceived differently from those engaged in pay-on-delivery transactions. Additionally, the duration between payment and the delivery of products or services can influence the risk assessment.
Creditworthiness of Stakeholders
The creditworthiness of the directors and owners of the business is another factor under scrutiny. Personal guarantees may help offset potential risks in cases where creditworthiness is a concern.
It would be fair to say that the evaluation of high-risk status involves a comprehensive analysis of both the individual business and the industry it operates in, with particular attention to these core factors. This process aims to categorize businesses accurately and allocate them to the appropriate merchant category based on their risk profile.
The Advantages of a High Risk Credit Card Processing Account
High risk payment processing accounts offer a set of benefits that cater to businesses facing elevated risk factors. These advantages provide a level of flexibility and opportunity that may not be as readily accessible to low-risk merchants. Here are some of the key benefits:
Diverse Payment Options
High-risk merchants enjoy more flexibility when it comes to accepting payments via credit or debit cards. This flexibility enables them to:
Offer a Broader Range of Products and Services
Unlike low-risk merchants, high-risk businesses can sell a wider variety of products and services without constraints.
Process High Sales Volumes
High-risk businesses can handle high sales volumes, especially during special sales events and product launches. This flexibility is valuable for businesses that experience occasional surges in sales.
International Transaction Acceptance
Accounts with high risk credit card processing capabilities have an advantage in accepting international transactions and various currencies. Unlike low-risk merchants, they are not as limited in their ability to process payments from abroad. This international payment acceptance lays a strong foundation for potential business expansion into global markets. It opens doors to a broader customer base and international revenue streams.
