A high risk credit card merchant account is a merchant account or payment processing agreement that is tailored to match a company which is deemed high risk or is operating in an industry which has been deemed as such. These merchants usually must pay higher fees for merchant credit card accounts, which can increase their price of business, affecting profitability and Return on investment, specifically for firms that were re-classified as a high risk industry, and were not prepared to deal with the costs of operating as being a high risk merchant. Some companies focus on working specifically with high risk merchants by providing competitive rates, faster payouts, and/or lower reserve rates, all of which are designed to attract companies which are having difficulty getting a spot to do business.
Businesses in a selection of industries are called ‘high risk’ as a result of nature of the industry, the process by which they operate, or a number of other elements. For instance, all adult companies are regarded as high-risk operations, as well as travel agencies, auto rentals, collections agencies, legal offline and web-based gambling, bail bonds, and a variety of other online and offline businesses. Because utilizing, and processing payments for, these companies can carry higher risks for banks and financial institutions these are obliged to sign up for a dangerous credit card merchant account that has a different fee schedule than regular merchant accounts.
A processing account is a bank account, but functions more like a line of credit which allows a company or individual (the merchant) to obtain payments from credit and debit cards, employed by the consumers. The bank that provides the merchant account is referred to as the ‘acquiring bank’ and the bank that issued the consumer’s charge card is known as the issuing bank. Another important component of the processing cycle are the gateway, which handles transferring the transaction information from the consumer to the merchant.
The acquiring bank may also provide a payment processing contract, or perhaps the merchant may need to open a high risk credit card merchant account having a high risk payment processor who collects the funds and routes those to the account in the acquiring bank. Inside the case of a high-risk processing account, there are additional worries regarding the integrity from the funds, as well as the possibility that this bank may be financially responsible in the case of any problems. For this reason, high risk merchant accounts often have additional financial safeguards in place, including delayed merchant settlements, where the bank holds the funds to get a slightly longer period to offset the potential risk of fraudulent transactions. Another way of risk management is utilizing a ‘reserve account’ which is a special account in the acquiring bank where a portion (usually 10% or less) from the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not interest-bearing, as well as the monies from this account are returned for the merchant on the standard payout schedule, once the reserve time has passed.
Payments to a dangerous processing account are deemed to carry a heightened probability of fraud, and an increased chance of chargeback, refund, or reversal. For example, someone may use a stolen or forged debit or credit card to make purchases, or perhaps a consumer might attempt to execute an advance-authorization transaction (like renting a vehicle or reserving a hotel), employing a leayte card with insufficient funds. This increases the risk for your bank as well as the payment processor, as they will need to deal with the administrative fallout of coping with the fraud. Ecommerce can also be a danger factor, because businesses do not actually see an imprint bank card; they take orders over the Internet, and this can up the potential risk of fraud considerably.
Whenever a merchant applies to get a credit card merchant account having a bank, payment processor, or other merchant account provider, there are numerous factors to consider before settling on the particular merchant provider. It is often easy to negotiate lower rates, and something should request multiple quotes before choosing which dangerous merchant account provider to use for their processing needs.