What’s a High-Risk Merchant Account?
Those who engage in commercial activity need accounts with financial institutions that are willing to process their payments, as well as all of the other general functions typical of any money-bearing account. Without an account that can hold payments from customers, there really isn’t much of a business at all. There are thousands of different products to sell and dozens of various industries, though, with each being treated slightly differently by the institutions that serve them. As banks are businesses as well, only some are willing to deal with “high risk” businesses and process their payments, as some banks don’t want the headache of servicing that industry. For the banks that do, they provide what’s referred to as a high risk merchant account.
What kinds of businesses are high-risk?
When considering the concept of “high risk,” it doesn’t necessarily mean that it refers to a business that might go under at any point in time or whose financials are sketchy. It simply refers to service providers who are highly likely to require specialized services from their payment processing institutions. The types of businesses that most frequently make use of high risk accounts are auction sites, membership sites, bail bonds, adult products, and online electronics. Some of these businesses are considered high risk because there’s a good chance that chargebacks or insufficient funds on the part of the customer are likely to occur, while others are considered high risk because other payment processors don’t want to involve themselves in something like firearms sales or the adult industry.
What’s the difference between low-risk and high-risk accounts?
Naturally, since these businesses are likely to require more complex services, a high risk account holder should expect higher fees compared to lower risk accounts. Additionally, those with high-risk accounts will have to accept that their financial solution providers will likely limit their access to certain services. A high risk account is less likely to have a high credit limit and extreme ease when it comes to moving money around. The available services will have more limitations on them than regular accounts as well, whether it be a lower number of transfers allowed in a certain time frame or longer holds placed on checks being received or issued. That’s not to say high risk accounts are always a bum deal, though. Several new providers are specializing in these “high risk” industries in such a fashion that the risk is actually negligible, which allows them to offer accounts at reasonable prices with a reasonable array of extra services.
If you happen to learn that you’re in an industry that’s deemed as high risk, understand that a lot of it is based on things you can’t change like how customers interact with your services or the very nature of your services. That’s not to say that your high risk account will always be a limiting factor in what you can and can’t do with a bank. Once you’ve established yourself as being able to reliably operate within your industry of choice, whoever is processing your payments is likely to start giving you a much more favorable deal. Over time, you might find that your account ends up high risk in name only, so don’t panic that things are a bit more complicated at the beginning.
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