Before accepting credit card payments, it is mandatory for a business to own a merchant account with an acquiring bank. Generally, merchant accounts have two categories: low risk and high risk. Here, we will discuss every aspect related to high risk merchant accounts.
Out of all the processors available, very few accept high risk clients because of the perceived risks. Not one but a number of conditions make such merchants a threat to smooth and stable banking practices. As chargebacks are considered the major issue, it is interesting to discover the factors that build up to increase their risk. Some of the most popular ones are:
- Products/services offered by the merchant
- Method followed for sales
- Mode of processing the transaction
- The countries or locations the merchant sells its services/products to
- The average amount for monthly sales as well as individual transactions
Though chargeback are the determining risk factor, there are several other risk contributing factors as well. Let’s unveil the pros & cons of securing a merchant account with a high risk payment processor.
Being labeled high risk has some serious consequences. Check out them below:
1. Excessive Fees
As chargebacks are considered inevitable for such high risk businesses, excessive fees are imposed on them by the processors.
- Revenue-stealing rolling reserves
High risk payment processor requires merchant account reserve. This is because they are used by the acquiring bank the urgent situations in order to secure its assets. In case a chargeback gets filed against a business and the owner is unable to reimburse the issuing bank from its usual account, losses are covered through the reserve.
Majority of high risk businesses have a rolling reserve which is used to hold a portion of their monthly sales. Though these funds belong to the merchant, they can’t use them before a particular time frame. This is something that can cause cash flow issues for the merchants.
3. Increased chargeback fees
It is important for all the merchants to pay chargeback fees. However, for such merchants, the chargeback rates are quite high. Hence, a high risk payment processor has higher fees for every individual case which is filed against a business. Moreover, merchant who stray into hefty chargeback have to pay much more.
Though it seems hard to believe but even these risk accounts have some promising benefits. Yes, you read it right. These advantages are:
- Global expansion
To flourish in the worldwide ecommerce community, many merchants depend on assistance of high risk payment processor. While a low risk account can’t process multiple currencies, accept card-not-present transactions; all this is possible with high risk account.
- Infinite earning potential
As these accounts businesses can offer recurring payments, accept credit card transactions without any limit, sell products/services of their choice, they ensure making more profits as compared to low risk merchants.
- Non-threatening chargebacks
Due to excessive chargebacks, high risk accounts are rarely terminated. Though they have higher fines but their business sustenance is never in danger.
With this, you are well-versed with every elements related to higher risk accounts and their relation with chargebacks.