A higher risk processing account is actually a merchant account or payment processing agreement which is tailored to match a company that is deemed high-risk or is operating in an industry which has been deemed therefore. These merchants usually have to pay higher fees for merchant services, that may add to their expense of business, affecting profitability and ROI, specifically for businesses that were re-classified as a higher risk industry, and were not prepared to deal with the costs of operating as being a high risk merchant. Some companies focus on working specifically with high risk merchants credit card processing by giving competitive rates, faster payouts, and/or lower reserve rates, all of these are made to attract companies which are having difficulty locating a location to work.
Businesses in a range of industries are called ‘high risk’ because of the nature of their industry, the method by which they operate, or a number of other elements. For example, all adult companies are regarded as being high-risk operations, as are travel agencies, auto rentals, collections agencies, legal offline and web-based gam-bling, bail bonds, and various other offline and online businesses. Because utilizing, and processing payments for, these companies can hold higher risks for banks and financial institutions they may be obliged to sign up for an increased risk processing account with a different fee schedule than regular merchant accounts.
A merchant account is actually a bank account, but functions much more like a line of credit allowing a firm or individual (the merchant) to acquire payments from credit and debit cards, used by the consumers. The bank that provides the processing account is known as the ‘acquiring bank’ and also the bank that issued the consumer’s charge card is called the issuing bank. Another necessary element of the processing cycle are definitely the gateway, which handles transferring the transaction information in the consumer on the merchant.
The acquiring bank may also offer a payment processing contract, or perhaps the merchant may need to open a very high risk merchant card account by using a high risk payment processor who collects the funds and routes those to the account at the acquiring bank. With regards to a very high risk merchant account, there are actually additional worries regarding the integrity of your funds, and also the possibility that the bank can be financially responsible in the matter of any problems. Because of this, high-risk merchant accounts usually have additional financial safeguards into position, for example delayed merchant settlements, wherein the bank supports the funds for a slightly longer period to offset the risk of fraudulent transactions. Another means of risk management is the use of a ‘reserve account’ which is a special account with the acquiring bank wherein a portion (usually 10% or less) from the net settlement amount is held for any period usually between 30 and 180 days. This account might or might not be interest-bearing, and the monies out of this account are returned to the merchant around the standard payout schedule, once the reserve time has gone by.
Payments to some heavy risk credit card merchant account are deemed to hold an elevated probability of fraud, and an increased chance of chargeback, refund, or reversal. By way of example, someone might use a stolen or forged debit or credit card to produce purchases, or perhaps a consumer might try to execute an advance-authorization transaction (like renting an auto or reserving a hotel), utilizing a debit card with insufficient funds. This raises the risk for that bank and also the payment processor, as higrisk will suffer from the administrative fallout of working with the fraud. Ecommerce may also be a danger factor, because businesses will not actually see an imprint credit card; they take orders over the Internet, which can up the potential risk of fraud considerably.
Whenever a merchant applies to get a merchant account by using a bank, payment processor, or any other credit card merchant account provider, there are many factors to consider before settling on the particular merchant provider. It is often possible to negotiate lower rates, and something would be wise to request multiple quotes before choosing which high risk processing account provider for their processing needs.