The payment processor for a particular business determines whether it is a high-risk merchant account or not. Usually, every business uses its credit or debit card to process payment for the business.
During the process of underwriting, the payment processor decides an account as a high risk merchant account. These payment processors do a risk assessment based on parameters like what kind of business does a company does, financial transaction history, and the place where they carry on the business.
When an account carries a higher risk of a chargeback, the payment processing service provider will charge an extra fee for such merchant services. The chargeback ratio, should not exceed 0.9% of the value of all your transactions put together, at any given point in time.
What are the features of a high-risk merchant account?
- You have to sign a contract:
Immediately when your account falls under high-risk merchant services the payment processing company would get you to sign a long term contract. You will pay 1-2% more for every transaction as your account is at higher risk. This will do good to both of you till the time you remain a High-risk merchant. The moment you start falling under the lower risk category, it will benefit your service provider at your expense.
- Tiered pricing, not interchange-plus pricing:
When your business account falls under a merchant account hold, your card will attract tiered pricing as against interchange-plus pricing. The processing service providers charge a fee that is higher in tiered pricing as compared to interchange-plus pricing.
- Chargeback fee:
As your account falls under the high-risk category, your account is more likely to attract a chargeback fee. A chargeback happens when there is a purchase return transaction or the customer disputes a transaction. In such a case, you have to return his money. As a result, your service provider will charge a relatively higher fee for chargebacks.
- Check to rolling reserve:
When your business account is under high-risk merchant services, some volume of the transactions for payment processing will be kept aside as a reserve. It is as a part of security policy and to protect themselves from fraudulent activities.
The high-risk businesses have to pay a heavy price as rolling reserve credit to their bank. Your service provider bank charges this to protect themselves from chargebacks and other fraudulent transactions. After the stipulated time, the transactions will be processed, and you get the amount in your business account.
When you are new to the business without a payment history, your low-risk merchant account will also attract higher rolling reserve credit as a part of the precautionary measure of your bank.
In short, when your account is tied up with a higher risk of returns and fraudulent transactions. All you can do is to choose a reliable payment processor to free yourself to make the process of opening a high-risk merchant account easy. A reliable payment processor will help you insulate your business from fraudulent transactions and chargebacks.