Great High Risk Merchant Processor Tips

A high risk merchant account is a merchant account or payment processing agreement which is tailored to fit a business which is deemed high risk or is operating in an industry that has been deemed as such. These merchants usually need to pay higher fees for merchant services, which may add to their cost of business, affecting profitability and ROI, especially for companies that were re-classified as a high risk industry, and were not prepared to cope with the expenses of operating as a high risk merchant. Some companies concentrate on working specifically with good high risk merchant account risk merchants by offering competitive rates, faster payouts, and/or lower reserve rates, all of which are designed to attract companies which are having difficulty finding an area to do business.

Businesses in an assortment of industries are labeled as 'high risk' because of the nature of their industry, the method in which they operate, or perhaps a number of other factors. For example, all adult businesses will be considered to be high risk operations, as are travel agencies, auto rentals, collections agencies, legal offline and online gambling, bail bonds, and a variety of other offline and online businesses. Because working with, and processing payments for, these companies can carry higher risks for banks and financial institutions they are obliged to sign up for a high risk merchant account which has an alternative fee schedule than regular merchant accounts.

A merchant account is a bank-account, but functions more like a credit line that permits a business or individual (the merchant) to receive payments from credit and debit cards, used by the customers. The bank that provides the merchant account is called the 'acquiring bank' and also the bank that issued the consumer's credit-card is called the issuing bank. Another necessary component of the processing cycle are the gateway, which handles transferring the transaction information from the consumer to the merchant.

The acquiring bank may also provide a payment processing contract, or perhaps the merchant may need to open a high risk merchant account with a high risk payment processor who collects the funds and routes them to the account at the acquiring bank. In the matter of a high risk merchant account, you will discover additional worries about the integrity of the funds, as well as the possibility that the bank may be financially responsible when it comes to any problems. As such, high risk merchant accounts often have additional financial safeguards in place, such as delayed merchant settlements, in which the bank holds the funds for a slightly longer period to offset the risk of fraudulent transactions. Another method of risk management is the use of a 'reserve account' which is a special account at the acquiring bank where a portion (usually 10% or less) of the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not be interest-bearing, and also the monies from this account are returned to the merchant on the common payout schedule, once the reserve time has passed.

Payments to a high risk merchant account are deemed to carry an increased risk of fraud, and an increased risk of chargeback, refund, or reversal. As an example, someone may utilize a stolen or forged credit or debit card to make purchases, or perhaps a consumer might try to execute an advance-authorization transaction (like renting a car or reserving a hotel), using a debit card with insufficient funds. This increases the risk for the bank as well as the payment processor, because they will have to handle the administrative fallout of handling the fraud. Ecommerce could also be a risk factor, because businesses do not actually see an imprint credit-card; they take orders over the web, and this can up the risk of fraud considerably.

When a merchant applies for a merchant account with a bank, payment processor, or other merchant account provider, there are many factors to consider before settling on a particular merchant provider. It is often possible to negotiate lower rates, and one should always request multiple quotes prior to selecting which high risk merchant account provider to use for their processing needs.