Is A High Risk Merchant Account That Important For Businesses?
High risk merchant account is basically a payment processing agreement or merchant account that is customized to suit a business which is deemed to be high risk or operating in an industry that’s been considered as such. Usually, these merchants have to pay higher fees for the merchant services which may add to their cost of business that then affects ROI and profitability.
There are companies that are specializing in working mainly with high risk merchants by providing faster payouts, lower reserve rates and/or competitive rates, all of which are made to attract companies that are having troubles in locating a place to do business.
The nature of industry they are in, the method to which they operate or even varieties of other factors are the determining elements to know whether a business is high risk or not. To give you a quick example, adult businesses are considered to be high risk operation much like in travel agencies, collection agencies, auto rentals, legal online and offline gambling, bail bonds and other businesses offline and online. They’re obliged to sign up for a high risk merchant account which follows a different fee schedule compared to regular merchant accounts due to the reason that working with and processing payments for these companies possess higher risks for financial institutions and banks.
Basically, merchant accounts are a bank account but this works like a line of credit that enables an individual or a company to receive payments from debit and credit cards used by consumers. The bank that offers merchant account is referred to as “acquiring bank” and the bank that has issued the credit card of the consumer is referred as issuing bank. The gateway is another vital component of processing cycle, which deals in transferring transaction information from consumer to merchant.
As a matter of fact, the acquiring bank can offer payment processing contract or the merchant might have to open high risk merchant account with high risk payment processor that collect funds and routing them to account at acquiring bank. In case of high risk merchant account, there are added worries regarding the integrity of funds as well as the possibility that the bank can be responsible financially in case of any problems. For this, a high risk merchant account usually have added financial security measures in place similar to delayed merchant settlements in which the bank holds the funds for a longer period of time.
Whenever a merchant applies for a merchant account with payment processor, a bank or any other merchant account provider, there are a number of things that must be taken into consideration before settling on a merchant provider.