What is a High Risk Merchant Account?
A merchant account is a type of account, approved by a bank or financial institution, that allows businesses to accept credit or debit card payment from their customers. However, the type of business applying for a merchant account may affect the level of risk associated with that merchant account. More and more companies are applying for a High-Risk Merchant Account because of the nature of their business. Let’s look at the most common reasons accounts can be high risk and what are the issues associated with opening this type of account.
So what is a High Risk Merchant Account?
Merchants are usually considered high risk for one of the following reasons:
- Worst-case scenario of taking a loss on your account, due to your personal credit or company finanacials not able to support the sales volume that you are applying for
- Your service or product has a longer chargeback liability period. If you are offering annual memberships, customers have 18 months to issue a chargeback (6 months from the end of the service date)
- You are in an industry that has a history of high-chargebacks. The bank feels they will spend too many resources managing your account, and eventually have to turn you off regardless if/when you exceed chargeback thresholds
- The account has a “reputational” risk, such as the adult industry
- If you are on the TMF or MATCH list
If a merchant is considered high risk, they will have a more difficult time obtaining a merchant account, but Durango-Direct.com has the experience and the relationships in place to assist you!
Types of businesses that need a High Risk Merchant Account
- Annual memberships
- Adult products
- Bail bonds
- Business opportunities
- Electronics sold online
- Debt service
- Horoscope/Fortune telling
- Firearm dealers
- Mail order or telephone order
- Multi-level marketing (MLM)
- Online auctions
- Online dating sites
- Software downloads
- Telecommunications (VOIP or Calling Cards)
- Timeshare Advertising
- Travel services
High-Risk Merchant types
Though these businesses may be profitable, they can run into problems taking payments due to the non-availability of high-risk merchant accounts. Businesses with one or more of the following features make them a high risk merchant business:
- The business has been black listed by credit card companies on the TMF or MATCH lists.
- The business’ guarantor has poor personal credit
- Products or services that the business sales are deemed to be prohibited by some but not all banks
- The business sells future deliverable products, like a hotel reservation, tickets to an event, etc.
- The business sells expensive items, like furniture or custom auto parts, etc.
- Industries with historically high chargebacks
- Memberships with automated recurring billing
- Businesses with high sales volume, without having established company financials to support the chargeback liability
Opening a high risk merchant account
It can be perplexing for a high risk business to find a merchant account provider because most financial service providers follow stringent guidelines for approving a business’s merchant account services. Again, this is caused any number or combination of the factors discussed above.
Contact Durango Merchant Services today to discuss your account needs with one of our merchant account specialists!