Merchant accounts are required in order for a business to accept credit card payments. As a merchant, there are two places you can obtain a merchant account; a bank, or a third party provider. For online merchants the most popular, and in most cases cost effective, source is from a third party merchant account provider.
A high risk merchant account is required by businesses that, when compared to a ‘traditional’ goods/services business, are at a higher risk of:
- Fraudulent Transactions
- High volume of sales
- High rate of refunds
- High rate of charge-backs
Other reasons a merchant may be categorized as a high risk are:
- Merchants Location – Some merchant account providers will not accept merchants from certain countries.
- The Product/Service the merchant sells is illegal in some jurisdictions.
- Merchant Credit History – Some providers will not accept merchants with poor or no credit history.
Due to the high risk classification, most banks will not provide a merchant account to those in a high risk industry (such as adult entertainment, replica goods, pharmacy etc). As such some third party providers offer their services to both general merchants and high risk merchants.
Merchant account providers that have been developed to service high risk merchants will generally provide a higher level of fraud protection, so as to decrease the cost their merchants incur. However, in order to cover the higher level of risk, rates for a high risk merchant account will always be higher than their lower risk counter-parts.
When looking for a high risk merchant account, there are a number of factors that you should take into account. Rates will be one of the most important factors, and this includes fees for refunds and charge-backs, along with transaction fees, the discount rate and ongoing fees. Then you will need to think about fraud protection, customer service and reporting available to you as a merchant.