High Risk Merchant Accounts Explained

What is a High Risk Merchant Account?

Merchant services is a very broad subject. It involves merchant account providers, payment processors, acquiring banks, merchant types, POS systems, terminals and payment gateways. It is important to understand that not all merchant services providers are the same. The change varies between costs, acquiring banks and processing platforms. One of the most diversified characteristics of a merchant provider is what business types are accepted for processing.

It is important to understand that every merchant services provider has its own underwriting department. Underwriting must follow acquiring banks’ approval guidelines. The final word may fluctuate between underwriting and the acquiring banks. It is all a matter of liability.

Basically, a business type that is not accepted by the majority of MSP’s (merchant services providers) is considered to be high risk. The reason behind some unaccepted business types is the lack of regulation. The most recent example of that is electronic cigarettes. Lacking standard regulation enforcing the industry, acquiring banks are not very enthusiastic on approving these merchants to process, especially e-commerce merchants.

Although lack of regulation is one primary reason, another one is industry history. For example, the online technical support industry have been blacklisted by most payment processors after it was found that many of these companies use malware to advertise their product and misrepresent information to consumers. This act have caused the good and honest companies to be denied from obtaining merchant accounts for their business.

After we have covered industry (or business) types, there are other individual reasons why someone would need to pursue a high risk merchant account. The most common individual reason is bad credit, or bad financial history. Business owners, of any industry, with poor financial history may find it difficult to obtain a merchant account even for a small retail business. Banks treat merchant account as a line of credit. The result may impact merchants of any industry.

Another common reason why a merchant may fall into a high risk category is if the merchant runs high ticket amounts in a card-not-present environment. Basically, MOTO merchants with high ticket amounts also fall into that category. The reason is simply, liability.

There are multiple options available to high risk merchants. In the US there are multiple acquiring banks and MSP’s that are willing to explore individual merchants, without discriminating against a whole industry. Finding them may be a tough mission, but after all, you can count on one of our high risk merchant account specialists to do this job for you!