What is a high-risk merchant account?

A high-risk merchant account is a payment processing account for companies that banks consider to be high-risk. Since high-risk companies are more likely to experience chargebacks, they must pay higher rates for merchant services.

The bank may place a reserve on your account if your company has a high risk of chargebacks or if your account history shows many chargebacks and refunds. It’s the amount of money set aside to cover the risk of chargebacks or fraud.

What Is Used For?

A high-risk merchant account is required if you operate an online business with a high risk of chargebacks and want to process credit card transactions. But what exactly is a high-risk merchant account, and how can you say if you need one? You’ll need to find an acquiring bank that will underwrite your business before you can open a high-risk merchant account.

There are a few types of business accounts. On the one end are low-risk ventures used for businesses that deal in everyday transactions with few chargebacks. On the other side are high-risk accounts. These are generally online businesses with the potential for a more considerable amount of chargebacks.

In 2017, over 40% of online companies in the U.S. and Canada were considered high-risk accounts. Unfortunately, due to the nature of what these organizations do, they have a more difficult time processing credit card transactions without this type of account.

So, how does someone quickly qualify for a high-risk merchant account? One that companies like Transendpay carefully vetted to ensure they aren’t fraudulent? Here are six ways to do so.

How To Manage Chargebacks

You can take advantage of chargebacks and use them for your own financial purposes. How much your company makes monthly is a significant qualifier for a high-risk account, where a low-risk entity can make less than $20,000 a month; the other needs to make more than that.

This is on a steady basis. Financial organizations won’t approve a high-risk merchant account most of the time if the numbers continue to fluctuate between months. To prove this, your company may need to provide records that prove you produce high-end sales.

Average Transactions Of $500

Again, the proof is required on this. The average amount per credit card transaction must be at least $500. Though a small amount might be under this number, a significant percentage has to be $500 or higher.

If not, then the financial institution may deny you the high-risk merchant account. This doesn’t mean you’d qualify for a low-risk version. There are other factors listed below that would most likely prevent you from going that route.

Chargeback Ratio Less Than 1% Of Transactions

There’s high-risk, and then there’s extreme high-risk. You don’t want your chargebacks to be incredibly large at any given period. If so, that flags your company as potentially fraudulent.

So, try to keep your chargeback ratio to less than 1% of all transactions. To be more precise, it must be below 0.9%. Thus, you want to keep bad accounts to a minimum.

Own A Certain Type Of Business

Not all companies qualify for a high-risk merchant loan. They have to be certain types of organizations known for repeated cases of cancellations. They may also be subject to several counts of credit card fraud by customers.

A travel agency is one business that would need a high-risk account. Various factors, like weather or a pandemic, can cause cancellations. Online gambling sites are also deemed as high-risk. Others include airplane charters, offshore companies, and “How-To” sites.

Product Sales To Countries With High Fraud Levels

There are plenty of countries across the globe that troll the internet for liable companies. When they find one, they proceed to inundate them with fraudulent transactions. As a result, sales have to be canceled, and chargebacks are required.

These companies are considered prime candidates for high risk merchant accounts. The failure of these transactions signals credit card companies that they shouldn’t be provided with their capabilities.

Bad Credit History

The business has to continue no matter the situation. This includes circumstances where a company has a bad credit history. Fortunately, this is the type of company where high-risk merchant accounts are used.

Here, they aren’t used to punish the company. Instead, they’re implemented to stem the fraud that caused the bad credit in the first place. It helps a business maintain sales to repair the problems.

The items listed above are the basics of quickly qualifying for a high-risk merchant account. To get the process moving forward, other things need to be worked on. For example, your website needs to be upgraded to comply with the financial institution’s security guidelines. This helps minimize a further increase in chargebacks.

You also need all your paperwork in order. This includes shareholder or incorporation certificates, an organizational chart, and six-months of processing history. Before a single credit card transaction can proceed, user credentials must be tested for security.

Overall, you can quickly qualify for a high-risk account if you have your ducks in order. Doing so gets your company back in operation to correct the issues you previously encountered.