Simpler payments make it easier for a business to grow and boost its revenue. Business owners rely on payment processors, banks, and card networks to offer a seamless buying experience. This could range from payment processing to fraud prevention, to dealing with regulatory compliance, and other issues like refunds or chargebacks. But many businesses or industries are deemed high-risk. This could be because of various reasons such as high volumes of chargebacks, are at higher risk of fraud, deal in high-value international transactions or operate in high-risk markets. Or, they have a poor credit history. Such businesses need a high-risk merchant account to process their payments. Simply put, a high-risk merchant account is a merchant account for businesses that are considered high risk by banks. But such accounts have higher fees and have a more stringent review process.
In this blog, we help you understand what a high-risk merchant account is and if your business needs one. Read on to know more.
What is a High-Risk Merchant Account?
To be able to accept and process any form of card payment or other electronic payments like bank transfers, digital wallets, e-invoices, etc, a business needs to have a merchant account. Businesses that are classified as high-risk need a high-risk merchant account to transact and receive payments. Banks and payment processors have their terms and policies regarding high-risk businesses. As such, it is always good to know the additional requirements or restrictions you may face as a merchant. Here’s a look at a few of them.
- The rates, fees, and service charges are higher for merchants who operate high-risk businesses. They have to pay a higher processing fee or chargeback fee to account for the risk the PSP is undertaking on their behalf. But there may be a few additional costs like an early termination fee, an annual or monthly fee, or a rolling reserve.
- You may have to enter a longer contract period if you own a high-risk business. At the same time, a contract may be terminated on short-term notice if your chargeback rates continue rising. So, be sure to closely monitor your chargeback activity and do your research prior to choosing your service provider. While some require you to enter a long-term contract, there are others that offer a more flexible contract term.
- The risk status of your business is subject to change as your business develops and as per the policies and terms of the service provider/bank. For instance, if you witness a high period of growth, or say if you decide to expand your services to other regions, or even shift your industry, chances are higher that your business status will be changed to a high-risk one.
So, which are the businesses that are considered “high-risk” ones?
- New businesses that have little or no payment processing history or have a poor credit rating.
- Businesses that have a high volume or high value of transactions. Or if a business accepts payments in multiple currencies.
- If a business operates in countries that are listed as high fraud-risk markets.
- Has a history of facing high chargeback volumes.
- E-commerce businesses are classified as high-risk businesses because of the uncertainty of their success rate, the volatile nature of their assets, low credit score, a limited payment processing history, etc.
All of these are seen as potential red flags by the payment processor or acquiring bank, and accordingly, they determine if your business needs a high-risk merchant account.
What are the Benefits of a High-Risk Merchant Account?
A high-risk merchant account is a sustainable payment solution for businesses that are more prone to risks. To help such businesses reduce fraud exposure or eliminate the chances of completely closing their merchant account, high-risk payment processors like Novalnet offer specific services – such as using AI-based risk assessment systems, processing payments in multiple currencies, etc.
Here are some benefits of a high-risk merchant account:
- Sell worldwide – Having a high-risk merchant account allows you to accept payments in multiple payment methods and currencies. You can sell your products and services to customers across the world, including countries or sectors that are considered high-risk (for example, outside the EU and UK, or sectors like gambling and ticket services)
- Avail better risk management strategies to reduce the chances of fraud, chargebacks, or money mismanagement.
- Better compliance, higher customer trust – Most payment processors adhere to strict KYC norms and strongly abide by regulatory compliances. Having a high-risk merchant account with a reliable service provider helps you maintain high levels of security, thus increasing your customers’ trust in your brand.
- Handle high sales volumes or high-value transactions – High-risk merchant accounts make it possible to accept various types of payments, including recurring payments. You can also process higher sales volumes and higher value transactions. This helps you to increase your revenue and profits.
- Better chargeback protection – High-risk merchant accounts give you better cover from chargebacks. With some standard merchant accounts, a single chargeback can lead to a terminated account. But a high-risk merchant account gives you much more leeway.
How to Choose a High-Risk Merchant Account?
- Fees – While price will always be a determining factor when you choose your provider, you must also ensure to check the terms for hidden costs and work out the best possible pricing for your business. This will help you avoid surprises later.
- Monthly vs pay as you go – You can get high-risk merchant account services for a monthly fee, or as a pay-as-you-go plan. Choose what is best for your business. If you have lower sales volumes, a pay-as-you-go plan will work better for you. If you are a larger company with higher sales volumes, a monthly or yearly plan might be a better option.
- Payment transfer time – This one is very important. You must be clear as to when the money will move from the merchant account to your bank account. Some providers clear funds in days, while some take weeks. Ensure to check this before you sign up, as payment transfer times will directly impact your business’s cash flows.
How can Novalnet help?
As one of Europe’s leading payment service providers, Novalnet helps make payments simpler for all businesses. Our merchant account services are available for businesses of all sizes and scopes. We ensure that your payments are processed in a fully secure PCI-DSS compliant environment. Our technology helps Europe’s leading brands to accept payments globally in 125+ currencies in 150+ automated country-specific payment methods. We help you set up your payments within minutes with minimal coding using our instant payment plug-ins. While our AI-based risk management solutions help you design the safest and best payment experiences for your customers.
Reach out to us to know more.
Gowri Shankar is the IT Application Security Manager at Novalnet with versatile knowledge in Programming and System/Security architecture. Having 11+ years of experience in the financial services industry, Cybersecurity, Payment Card Industry Data Security Standard (PCI DSS). Certified in Advanced Payment Card Industry Security Implementer (CPISI 2.0), Secure Software Lifecycle Professional (CSSLP) from (ISC)².