High Risk Merchant Account

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Location, capital and management are the three most essential elements of a successful business. But, in the current era, there should be a fourth – payment processing. Whether your business is B2B or B2C, providing your clientele with payment flexibility in an emerging cashless environment can make or break your business.

Luckily, with merchants like ourselves, there’s no shortage of payment processing solutions that you can look into for your business. But not all businesses have it easy. If you’re finding it hard to open a standard account or are constantly turned away, you might be a high-risk merchant, and a high-risk merchant account is what you should be looking for. So let’s break it down for you!

What is a High-risk Merchant Account?

Brick-and-mortar and online businesses require payment service providers to help them accept and process payments from various platforms. These can be debit, credit or online payment options like PayPal.

Usually, these payment processing firms (Pay iO included) must fulfil the Know Your Customer (KYC) protocol before allowing you to open an account. The firms check various factors, including the nature of your business, your cash flow and the trends in your field of business. If these factors show that your business is high-risk, the firm declines your request to open a standard merchant account. Most firms don’t have an alternative, but at Pay iO, you can open a high-risk merchant account.

The account operates the same way as a standard account, with a few additional features and requirements that allow you and the payment processing firm to run smoothly without getting into crosshairs with the bank.

How is a High-Risk Merchant Account Different from a Standard Account?

Operating a high-risk merchant account comes with some subtle differences. But they make all the difference. Some of the differences you should expect when opening a high-risk merchant account include the following:

  • Higher operating fees – Regular merchant accounts might have a processing of about 0.3% above the interchange rate. A high-risk merchant account could go up to 1.5%, including the interchange rate. The transaction and chargeback fees are generally higher. But the exact rate will differ depending on the payment service provider.
  • A Longer application process – High-risk merchant accounts require more paperwork. Therefore, the application process is longer. Merchant service providers could ask for detailed information to understand your business better and the risk that comes with it. It’s not unusual for service providers to check your processing history, personal credit history and partnership during the application process.
  • Tighter cash reserve requirements – One of the factors that merchant services consider when classifying a business as high-risk is their rate of refund and chargebacks. For businesses in this class, the cash reserve requirements imposed by the service provider are higher. The payment process could set up to 10% of every transaction you process for chargebacks and refunds.

You receive the balance if you don’t have any refunds or don’t deplete the amount within a particular time.  

The payment processing service may also add other requirements, like a capped and upfront reserve.

It’s not all doom and gloom with a high-risk merchant account. When you align yourself with the right payment service provider (think Pay iO), there are benefits as well like;

  • Currency flexibility – The right high-risk merchant account accepts payments in multiple currencies. You can sell to customers in the larger Europe, Japan, Australia, Canada, the United States or anywhere else in the world with a major currency.
  • Higher sales volume – Most low-risk businesses have an average monthly sales volume of about $20,000. You can go above the $20,000 limit with a high-risk merchant account. The account accepts more payments meaning more business and more revenue.
  • You can open an IBAN account – An IBAN account gives you access to multiple European and international banks. You can access all the banks on one platform with the right payment service provider. You can process incoming and outgoing transactions under a single agreement. It’s convenient and could easily reduce transaction costs.

How is a Merchant’s Risk Determined?

Any responsible payment service provider assesses new merchants to determine their risk level. The provider analyses various factors in the business sector and its vertical using three risk options:

Credit risk

The service provider digs into your payment and delivery history. The analysis could go as far as your personal finances for some businesses. Under this assessment, almost every new business is considered high risk because they don’t have any financial records to go on. Merchant service providers also consider high turnover, chargeback and refund rates as high risk.

Regulatory risk

Businesses in highly regulated fields with a high chance of drastic changes are also considered high risk. The industry’s unpredictability makes long-term business unsustainable and increases the risk involved. Such sectors have more laws and a higher chance of businesses breaking them. Such industries include;

  • Adult entertainment
  • Charities
  • Cryptocurrency
  • CBD
  • Dating and escort services
  • Alcohol
  • Gambling
  • Health and wellness products
  • Money Transfer
  • Lender merchant accounts and services

Reputational risks

Banks rely on their own reputation. Therefore, any activities that could compromise their reputation are deemed high-risk. That includes facilitating frowned-upon transactions even when they are legal.

What to Do If You’re a High-Risk Merchant

The high-risk merchant tag isn’t a life sentence. You could slowly work your way into a low-risk merchant. Whether you’re successful in crossing the board depends on the nature of your business. If your high-risk status comes from having a new business, having a recent influx of refunds and chargebacks or not making enough consistent sales, you have a solid shot of turning the table. Here’s what you should do.

  • Have a healthy cash flow – A healthy cash flow in your processor’s account paints a picture of a healthy and stable business. It will lower your risk perception and, over time, help you build your case for a low-risk merchant account. However, while at it, you should know the funds in your merchant account are not deposits. Therefore, they’re not covered by the FSCS.
  • Reduce chargebacks – Work on reducing chargebacks. Pay attention to client orders and try to dispatch and deliver on time. Most importantly, don’t make promises you can’t keep. Constantly analyse your business, determine the source of the chargebacks and make improvements.
  • Transparency – Provide the payment processor with all the documents and information required during the application process. Some processors will also run random verification processes after opening the account. Always corporate and give detailed information about your business and finances.
  • Keep your documents close – As a high-risk merchant, sign-up is not the only time you require documents like bank statements and tax returns. Each merchant service provider has their set of requirements. But you should expect AML and ID verification at any time. So, be flexible and ready to provide any required documentation promptly.

There are no guarantees that following these steps lowers your risk level. Merchant service providers have to follow banking guidelines; for some businesses, getting a low-risk merchant account is almost impossible. But trying these steps could put you in good books with the processor.

How to Get a High-risk Merchant Account

Getting your high-risk merchant account begins with completing an application with your preferred payment service provider. Finding one shouldn’t be a problem, but research the features and benefits of each before settling on one.

As mentioned earlier, you need documentation. In the case of a high-risk account, the processor could ask for the following documents;

  • Business registration documents like incorporation certificates, business licenses and other company documents.
  • Personal and business addresses, phone numbers, website URLs (for businesses with a website), email addresses, tax identification numbers and owner’s passport or ID.
  • Bank documents like a void check and a bank letter showing your business name, address, routing and account number. A bank letter confirming your account is in good standing
  • 3-6 months of the most recent bank account statement or a statement for your personal account for start-ups.
  • Up to 2 years of business or personal tax returns, profit and loss statements, and complete financial statements with balance sheets.
  • Up to 6 months of Credit Card processing statements.

The required documentation will vary depending on the processor. Some might require more, whereas others require less.

How Pay iO Can Help High-Risk Merchants

With Pay iO, you can build better and seamless payment experiences. We offer numerous features that help your business cut costs, fight fraud and keep your cash moving faster and smoother.

The Pay iO API is built to help your business grow in a modern, technology-driven environment. Complete adherence to European PSD2 legislation and advanced security features like end-to-end encryption reduces your exposure to fraud and keeps your customer data secure.

We can easily support small and large businesses, facilitating global payments from your customers and providing the tools to manage your account conveniently.

We give you the real mid-market rates for businesses operating multiple currencies, with only one low fee to exchange currencies.

Mobile and web apps on leading platforms like App Store and Google Play Store give you unrestricted access to your account from anywhere in the world! With our open banking platform, we can help power your business to the next level.

Rapid Setup, Web & Mobile Access, FX Exchange

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