A merchant account is approved by a bank or a financial institution to allow a merchant to process credit card and debit card transactions. Some businesses have more risk associated with processing such transactions than others do. These businesses fall into the category of “high risk” merchant accounts.
There are various factors that a bank or a financial institution takes into consideration when determining the difference between a regular account and a merchant services high risk account. Some of these include the personal credit history of the business owner, the number of years the business has been operating, the industry sector that the business exists in, and the product or service that is being sold by the business.
The worst-case scenario is when the bank or financial institution takes a loss on a specific merchant account because the company’s financials and personal credit of the business owner are insufficient to offset any losses.
One thing that increases the risk is if the product or service being sold has a long chargeback period. For example, an annual subscription can be challenged with a chargeback complaint any time up to six months after it terminates. This means, in total, there is an 18-month delay between the initial processing of the credit card charge for an annual membership to the time that one is sure that it will not be subject to a chargeback.
Another reason for significant chargeback risk is when a business is operating in a business sector that has “reputational” risk, such as selling adult products. Some financial institutions will simply refuse to support businesses that sell certain products or services.
Even though these businesses can be run in a way that makes them profitable, they can run into problems taking credit card payments unless they are supported by a credit card processor that understands high-risk merchant accounts.
Luckily, there are excellent companies with the expertise and experience to work with merchants services high risk accounts that can set up a credit card processing system that is effective and financially sound.
Businesses that have one or more of these characteristics are normally considered to be a high risk merchant business:
- The business is blacklisted on the MATCH or TMF lists.
- The business owner has a poor credit history.
- The products sold are for delivery in the future such as hotel reservations or tickets to an upcoming event.
- The products sold are high–ticket items like custom furniture or specialized auto parts.
- The company operates in an industry with a history of having a high level of chargebacks.
- The company bills for membership services on an automatic, reoccurring basis.
- The sales volume is high, yet the company does not have the track record of experience and has not been operating for a sufficient period.
If you find your company is facing any of these problems it is best to learn more about the merchant services high risk account solutions that are available in order to be able to process your credit card transactions.