You may have heard the term “high risk merchant account” and wondered what it’s all about. To put it simply, they are payment processing agreements or bank accounts given to businesses that are considered “high risk”.
High risk businesses generally have to pay higher fees for their merchant services. This means that they have higher operating costs. There are some financial institutions that specialize with working with high risk merchants in particular. They offer them competitive rates in an attempt to connect to merchants that have had trouble finding a good account.
Businesses across several industries can be labelled high risk due to the nature of their industry. For example, any gambling business is considered a high risk, as are businesses such as auto rentals, travel agencies, bail bonds, and legal gambling. Because it is risky for a bank to work with those businesses, they have to sign up to specific high risk merchant accounts. It’s similar to how an individual considered to have a high risk of defaulting on a loan would have to pay higher interest rates to account for the risk.
A regular merchant account is a bank account where businesses receive payments from credit and debit cards. Banks also supply payment processing contracts, or a business may have to open a merchant account with a separate payment processer – such as PayPal – who collect funds and send it to the bank account. There are concerns about the integrity of the funds from high risk merchants, as well as the risk that a bank could be held liable if something went wrong.
Payments from high risk merchant accounts come with a risk of fraud. For example, someone could use stolen credit cards to make purchases, or they may try to make a purchase with a debit card that doesn’t have enough money for it. When this happens, the bank and payment processor face a risk, as they have to deal with any administrative fallout from the fraudulent purchases. Ecommerce is another risk factor, as businesses don’t see the cards and they take orders online, increasing the risk of fraud.
When merchants apply to open accounts with a bank or other payment processer, they may be told they have to apply for a high-risk merchant account. It’s worth comparing the terms, rates, and services on different accounts before choosing one. Rates can vary considerably depending on the bank and you may be able to find a better deal by looking around.
Another option to consider is an anonymous merchant account. As the name suggests, these accounts allow you to sign up for a merchant account anonymously. These anonymous merchant account options have their uses. They can help to protect your information in an increasingly dangerous online world, for example. They also allow you to grow your business at a reduced tax rate and set up a business account in any currency you want.
Which account is right for you depends on your business needs and current circumstances. Consider your options and see which one is best for your business.
Accept Credit Card Payments Anonymously