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. In most instances, what these merchants do is pay for a higher fee to acquire merchant service that adds on their business expenses which impact their profitability as well as ROI. This is felt mostly by companies and businesses that operations were reclassified in high risk industries and were not yet ready to deal with the costs involved in operating as a high risk merchant.
There are companies that specialize specifically with high risk merchants by providing competitive rates, lower reserve rates and/or faster payouts. All of these are designed carefully to increase people’s interests.
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. So as an example, adult businesses are seen high risk in operation like bail bonds, car rentals, legal offline and online gambling, travel agencies, collections agencies and many other businesses in the offline and online arena. 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 the bank account but this serves more as a line of credit that allowed an individual or merchant or a company to receive payments from the customer’s debit and credit cards. The bank that is providing merchant account is referred to as the “acquiring bank” and the bank that has issued the consumer’s card is known as the issuing bank. Another critical component of the processing cycle is the gateway. This handles the transfer of transaction information from the customer to the merchant.
Acquiring bank can offer payment processing contract or the merchant may need to open 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. With this being said, the high risk merchant accounts usually include more security measures similar to delayed merchant settlements wherein the bank holds the fund for extended period of time in order to prevent risks of fraudulent transactions.