Is a High Risk Merchant Account Right for You?

All business carries with it a risk of some sort. However, if your business is one which is perceived to be high risk by the card processing companies, you can find it difficult to operate your business in a normal way. For these kinds of businesses there is one obvious option; high risk merchant providers. However, the perception of these businesses is not always positive.

Are You High Risk?

There are all sorts of companies who might find themselves classified as high risk. These include betting companies, drug stores, telemarketing agents and many others. All of them will have fallen foul of one or more stipulations that might render them persona non grata with the conventional low risk card providers. It could be the type of goods a merchant is providing, the countries in which it operates, a high chargeback to transaction ratio or the use of card not present payment methods. Many of the more conventional providers will not go near these businesses with a ten foot pole.

The most obvious alternative, therefore, tends to be a high risk merchant provider. This will allow businesses to operate on a cashless basis, expand across international boundaries, achieve a regular cash-flow and, in short, manage their business in the same sustainable way as any other conventional company.

There are of course disadvantages to these providers. The most obvious is excessive fees. Because of the higher risks involved, they will most likely cover their liabilities by imposing a slightly higher processing fee. A traditional merchant account might impose a fee of between 1.5% and 2% while a high-risk provider will look at something closer to 3%. All in all, you might expect to pay a little bit more per transaction.

The use of reserves to protect against the possibility of chargebacks can also significantly hit cash-flow. These reserves are held to reimburse the operator for any chargebacks that occur. Although this money is technically the merchant’s it is difficult to access and can limit the cash-flow.

Why They Might Work?

For all these limitations, though, high risk merchant accounts are often an ideal solution for your business. It can help you to expand globally, accept card-not-present transactions and process multiple currencies, not all of which you can do with a traditional low risk merchant account. Equally, if your chargeback rates begin to climb, a low risk provider would probably cease your working relationship. This would leave you with a very difficult choice; either find a high risk merchant account quickly or go out of business entirely.

It is important, therefore, to assess whether or not high risk providers represent a good option for you and your business. Weigh up the pros and the cons. Look at the associated risks such as chargebacks, account reserves or higher fees and calculate how they will impact your business. Against this, think of all the opportunities these providers open up. As with all areas of business, the simple rule is: if the benefits outweigh the negatives, you should probably go ahead.

Last but not least. The number of high risk merchant account providers is growing. Increasingly, therefore, this is becoming a buyer’s market so if you shop around you should be able to maximise your chances of getting a good deal.