Why Services Aren’t As Bad As You Think

What Is A High Risk Merchant Account?

High risk merchant account is basically a payment processing agreement or merchant account that is customized to suit a business which is deemed to be high risk or operating in an industry that’s been considered as such. These merchants usually need to pay higher fees for merchant services which might add to their cost of business that then affects its ROI and profitability.

There are many companies that specialize in working primarily with high risk merchants by offering faster payouts, lower reserve rates and/or competitive rates and all of which are created to attract companies that have troubles in locating a place to do business.

Businesses that operate in different industries will be considered high risk depending on the nature of industry they are in, the method to which they operate or even varieties of other factors. To give you a quick example, adult businesses are considered to be high risk operation much like in travel agencies, collection agencies, auto rentals, legal online and offline gambling, bail bonds and other businesses offline and online. They’re obliged to sign up for a high risk merchant account which follows a different fee schedule compared to regular merchant accounts due to the reason that working with and processing payments for these companies possess higher risks for financial institutions and banks.

The truth is, merchant accounts are bank accounts but they work like a line of credit enabling individual or a company to receive payments from debit and credit cards used by consumers. The bank that is offering merchant account is referred as “acquiring bank” and the bank that has issued the credit card of consumer is called as the issuing bank. The gateway is another vital component of processing cycle, which deals in transferring transaction information from consumer to merchant.

Whether you believe it or not, the acquiring bank is offering payment processing contract or the merchant account may need to open high risk merchant account with high risk payment processor that will collect funds and route them to account at acquiring bank. In case of high risk merchant account, there are added worries regarding the integrity of funds as well as the possibility that the bank can be responsible financially in case of any problems. For this, high risk merchant accounts normally have added financial security measures in place like delayed merchant settlements to which the bank holds the funds for a bit longer time.

There are several factors that need to be considered prior to settling on a certain merchant provider whenever a merchant has applied a merchant account with payment processor, a bank or any other merchant account provider.