Understanding a High Risk Merchant Account
High risk merchant account is a payment processing agreement customized to fit businesses which are considered to be high risk or operating in an industry that’s considered as such. Most of the time, these merchants need to pay higher fees for merchant services which can then add to their business expenses that affects their profitability and ROI. This is mostly felt among companies that were reclassified as being high-risk industry and were not prepared to deal with the cost that are associated to being a high risk merchant.
But don’t worry because there are also many different companies that have specialization with high risk merchants by means of offering clients with competitive rates, lower reserve rates and/or faster payouts. All of which are carefully designed to increase interest.
Businesses operating in different industries are assessed for the nature of industry they are in, the method that they use to operate and host of other factors. As a quick example, any adult businesses are high risk operation as are collections agencies, offline and online business, legal online and offline gambling, bail bonds, travel agencies and even car rentals. Because working with and processing payments for such companies are riskier for the financial institutions and banks, it obliged them to sign up for a high risk merchant account. So in comparison to the typical merchant accounts, this carries different fee schedule.
Merchant account is simply a bank account but this functions more of a line of credit that has enabled an individual or the merchant or a company to acquire payments from debit and credit cards used by their customers. The bank that provides merchant account is called as the “acquiring bank” while the bank that issued the consumer’s card is referred as the issuing bank. Another essential component of processing cycle is gateway. All information involved in the transaction is handled here.
Acquiring bank might be offering payment processing contract or perhaps, the merchant might have to open a high risk merchant account w/a high risk payment processor. This payment processor will be collecting the funds and reroute them to the account of the acquiring bank.
In terms of high risk merchant account, there will be additionally risks about the integrity of the funds and also, the possibility that the bank may be in charge financially if ever a problem arises. Because of this, high risk merchant accounts oftentimes put extra layer of security such as delayed merchant settlements in which the bank is going to hold the fund for extended period of time to be able to offset the risks for fraud transactions.