What is a High-Risk Merchant Account (Explained)
First thoughts surrounding processing, is if you want to accept credit card payments on your shop, project etc, there will be costs associated with it. The major card networks (Visa, Mastercard, Discover, and American Express) will charge interchange fees in order for you to utilize their network and the Merchant Service Providers (MSPs) charge processing fees (Refund, Chargeback, Transaction costs) in order for you as a client to connect the card issuing bank to the acquiring bank via payment processors.
Main thing that surrounds high-risk is the commonality of a high risk of getting chargebacks and fraud, which is also why the different banks and processors require a reserve (Usually 10% for 180 days), and they charge you above intercharge plus higher cost overall which is defined again by the business and industry.
The processor and the merchant account provider takes on the biggest responsibility in regards to the risk involving setting up mids in industries that is more prone to get chargebacks which then justify them to charge above the interchange to minimize the risk on their end and make the solution theseable.
How will I Know if I’m a High-Risk Merchant?
We have now provided you with a overview of what a high-risk merchant account is, but wait! There is more, so let’s go a little deeper and examine how MSPs determine your business’ risk level.
You can compare the situation of applying for mids with applying for a morgage or a loan, because much like with them you have to go through a underwriting team who evaluates your business and your project. They will evaluate you on plural parameters and when applying for a merchant account you need to make your case look attractive. Some parameters are:
- Your personal credit history
- Processing history if you’ve processed before
- Company financials
- Number of years in business
- If you’re blacklisted on the MATCH list or Terminated Merchant File (TMF). Which means it will be if not harder, impossible to get a merchant account.
- Type of business or merchant category code
Again different parameters helps you more than others and scenarios change with whatever is submitted in subject to being provided with a merchant account.