A high risk processing account is a merchant account or payment processing agreement which is tailored to suit an organization which is deemed high risk or is operating in an industry which has been deemed as such. These merchants usually need to pay higher fees for merchant services, which can add to their cost of business, affecting profitability and ROI, especially for firms that were re-classified as a high risk industry, and were not prepared to handle the costs of operating as being a high risk merchant. Some companies focus on working specifically with high risk merchants by giving competitive rates, faster payouts, and/or lower reserve rates, all of which are made to attract companies that are having difficulty getting a spot to work.
Businesses in a variety of industries are labeled as ‘high risk’ as a result of nature of the industry, the method where they operate, or a variety of additional factors. For example, all adult companies are regarded as being dangerous operations, much like travel agencies, auto rentals, collections agencies, legal offline and internet based gambling, bail bonds, and many different other offline and online businesses. Because working with, and processing payments for, these companies can carry higher risks for banks and finance institutions they are obliged to sign up for any dangerous processing account which has a different fee schedule than regular merchant accounts.
A processing account is a bank account, but functions more like a line of credit that enables a company or individual (the merchant) to get payments from credit and atm cards, used by the consumers. The bank that gives the credit card merchant account is known as the ‘acquiring bank’ as well as the bank that issued the consumer’s charge card is known as the issuing bank. Another essential element of the processing cycle are the gateway, which handles transferring the transaction information from your consumer to the merchant.
The acquiring bank may offer a payment processing contract, or the merchant may have to open a very high risk merchant account with a dangerous payment processor who collects the funds and routes these to the account at the acquiring bank. Inside the case of any high risk processing account, there are additional worries concerning the integrity from the funds, and also the possibility that the bank may be financially responsible in the case of any problems. For that reason, high risk merchant accounts usually have additional financial safeguards in place, like delayed merchant settlements, in which the bank supports the funds to get a slightly longer period to offset the risk of fraudulent transactions. Another way of risk management is utilizing a ‘reserve account’ which is a special account in the acquiring bank in which a portion (usually 10% or less) in the net settlement amount is held to get a period usually between 30 and 180 days. This account may or may not really interest-bearing, and also the monies from this account are returned for the merchant on the standard payout schedule, when the reserve time has passed.
Payments to a high risk merchant account are deemed to transport a heightened risk of fraud, plus an increased probability of chargeback, refund, or reversal. For instance, someone may make use of a stolen or forged debit or credit card to make purchases, or even a consumer might attempt to execute an advance-authorization transaction (like renting a car or reserving a hotel), employing a leayte card with insufficient funds. This increases the risk for your bank and the payment processor, as they will need to deal with the administrative fallout of coping with the fraud. Ecommerce can additionally be a risk factor, because businesses usually do not actually see an imprint charge card; they take orders online, which can up the potential risk of fraud considerably.
Whenever a merchant applies to get a processing account having a bank, payment processor, or other merchant account provider, there are many things to consider before settling on a particular merchant provider. It is often easy to negotiate lower rates, then one should request multiple quotes before choosing which high risk processing account provider to use for their processing needs.