A merchant account is considered a high-risk process for payments but levies hefty charges. A high-risk label means that the particular merchant is regarded as high-risk in terms of its subsistence and investment. Some companies consider getting a high-risk label a boon, whereas others consider its disadvantage. Usually, the conditions needed to get such an account are simple; and many companies satisfy the requirements. The availability of high-risk merchant accounts becomes easier for companies that have been in business for a significant time. Usually, these are big companies that transact multi-nationally. The question is whether small businesses can get a high-risk label. If you are a Canadian citizen, you can simply google a Canadian high risk merchant account to get further information. This article finds out whether small companies can get their merchant accounts labeled high-risk.
High-Risk Merchant Account
A high-risk merchant account processes payments. It processes payments for entities that are regarded as high risk by banks. There are greater chances of charge-backs with high-risk accounts. Such merchant accounts are required to pay high fees for their merchant services. Usually, the payment processor labels an account as high-risk or low-risk.
There are many reasons for which a merchant can be considered high-risk. Common causes include high transaction volume, acceptance of payments from international clients, new and novice merchants belonging to a high-risk industry, low credit score, etc.
There are certain business types and specific industries that are as high-risk. For example, the travel industry is considered high-risk. This is so because cancellations can take place for many reasons. The excess of cancellation leads to the company partying away with the refunds of the colony. It further leads to a significant number of charge-backs. In addition to the travel industry, there are industries like forex trading, the adult industry, etc., regarded as high-risk.
Pros And Cons
Having a high-risk account might sound burdensome, but pros are attached to it. There are long-term growth opportunities associated with high-risk merchant accounts. Profit margins are also better. The chance of dealing in multiple countries provides an additional benefit of trading in different currencies. Bad credit scores do not affect the progress of high-risk merchants; they can process credit card transactions despite the bad credit.
The cons of having a high-risk account are numerous. In contrast to various other credit card processing platforms, high-risk merchants pay higher processing fees. The fees associated with charge-backs are also higher for high-risk merchants. High-risk merchants can be compelled to enter into longer terms of the contract. They may also be liable to early termination fees or monthly or even annual fees.
Rolling Reserve is a con associated with high-risk merchant accounts. Banks are usually insecure about the money they have invested in high-risk businesses. Banks do not intend on losing money, so they secure a specific part of the credit card processed volume for 5-6 months. After this period, they release the amount and secure another amount for another 5-6 months. This way, the interests of the banks are secured.
Who Can Get It?
Here are a few guidelines to be eligible for a high-risk merchant account:
- Monthly sales of more than $20,000
- More than $500 average credit card transaction
- Businesses should sell products to countries where there are high levels of fraud
- Credit history should be bad
- There should be excessive charge-backs
When a merchant applies for a high-risk label, they ensure that precise procedure is followed and that requisite documents are submitted. The merchants have to submit the documents related to business and taxation while applying for a high-risk merchant account. Once the documents are submitted, the applications undergo processing. Based on the outcome of the processing, the payment provider assesses whether the business is eligible for being labeled as high-risk or low-risk.
The following types of businesses are usually considered high-risk:
- New businesses that have recently been established;
- Businesses that have not yet had a sufficient number of transactions;
- Businesses involved in specific industries that are themselves considered high-risk like travel, gambling, etc.
- Businesses have a high number of charge-backs and cases of fraud.
Can A Small Business Get A High-Risk Merchant Account?
Small undertakings and businesses are different forms of corporations, companies, partnerships, and proprietorships. They have a lesser number of employees and lesser annual revenue. Different jurisdictions have different definitions of a small business depending on their GDP, yearly revenue, number of employees, and business size of regular businesses.
There are no specific laws providing for small businesses to have, or not, high-risk merchant accounts. Nonetheless, looking at the qualifications, guidelines, and requisites needed for having a high-risk merchant account, it can be deduced if small businesses can have high-risk merchant accounts or not.
Businesses that have had sales of more than $20,000 and have average credit card transactions of $500 find it easier to get labeled as high-risk. Small businesses must fulfill these conditions to be eligible for getting labeled as high-risk. Small businesses must have monthly sales of more than $20,000 and an average credit card transaction above $500. Small businesses can get the label of high-risk by a bad credit card history. The small businesses venturing into new territories where the industry itself is high-risk will assist them in simply getting a high-risk account.
Whether small businesses can get a high-risk merchant account is a question that comes with an easy answer: fulfill the conditions necessary for getting a high-risk merchant account. The definition of ‘high-risk merchant account’ per se does not mandate that only big businesses are eligible for getting high-risk labels. Small companies who have been in business for a smaller period or who have lesser revenue and employees can also get a high-risk merchant account. A few requirements and conditions are to be complied with for getting a high-risk merchant account. If small businesses can fulfill these conditions, they can get a high-risk merchant account.