High Risk Merchant Accounts: Three Questions to Ask as a Business Owner

A merchant account is a bank account designed for businesses who want to take electronic payment card transactions from their customers. It offers some similar benefits to a credit union business checking account. In the digital age, a merchant account is a necessity for many businesses, especially those who sell goods or services online, but there are a number of different types of accounts available. You might be struggling to open a standard merchant account for your business, so in this guide we’ll be discussing everything you need to know about high-risk merchant accounts.

What Is a High-Risk Merchant Account?

When a merchant bank is assessing your account application, your business might be classed as high risk. This means that the merchant perceives what you do, or who you are, to make you more likely to miss payments due to factors like poor credit history or frequent chargebacks. To ensure that merchant banks could still offer their services to riskier merchants, the banks introduced high risk accounts designed for these individuals, which will usually be subjected to extensive scrutiny and possibly even higher fees.

How Is a High-Risk Level Calculated?

To calculate a merchant’s risk level, merchant banks will take some of the following factors into consideration:

• Owner or Director Credit History – if you or a business partner has a poor credit history or a past with fraudulent activity, you’re likely to be classed as high risk by a merchant bank.
• Business Sector – if your business is in certain industries, like gambling, payday loans, CBD or pyramid selling, it’s unlikely that you’ll be able to open a standard merchant account, so you might need to look at high risk options.
• Reputational Risk – while your business will be under scrutiny during your application, a high-risk decision can also be made if your company might put the reputation of the bank at risk, for example, if you work in a sector that is often negatively politicized.

While this list is not exhaustive, it should give you some idea of the type of merchants that banks categorize as high-risk. If you feel that your business fits into these categories, you should reach out to a specialist high risk merchant account provider to discuss your options.

What Are the Benefits of a High-Risk Merchant Account?

Although you might be concerned about setting up a high risk merchant account, there are actually a number of benefits, including, but not limited to:

International Payment Functionality

For many businesses, the option to go international is a key part of a long-term growth plan. As you have a high-risk merchant account, you can benefit from this functionality without having to continually reassess your risk level, like you’d need to with a low-risk merchant account.

Increased Flexibility

When you set up a high-risk merchant account, you’ll find that you have a number of different options that you can choose from when it comes to boosting your revenue, including the range of products you can sell and the ability to take recurring payments. In fact, many businesses who would typically be considered low risk actually opt for a high-risk merchant account due to the flexibility that they can offer. Often, a merchant will require a high-risk account for certain activities, even for businesses from lower risk spheres. While a lot of merchant banks will insist on higher fees or increased scrutiny for high-risk accounts, there are still a number of benefits that you can take advantage of if your business falls into this category. By choosing the right provider, you can do this while growing your reputation and capital, and you might even find that your risk level decreases over time.