High-risk merchant account mean higher fees for merchants

High-risk merchant account mean higher fees for merchants

Opening a merchant account allows a business owner to accept credit cards and hopefully increase their sales. Accepting credit and debit cards does mean paying processing fees, which can be offset with a higher volume of sales. But some types of business will see higher fees than others.

Some merchants fall into the "high-risk" category, typically due to the nature of their business. Examples of these include massage parlors, coin dealers and online gambling operations.

When applying for a merchant account, a merchant bank will also consider the potential for chargebacks, which are transactions disputed by a credit card holder. Some businesses have a higher likelihood for chargebacks than others.

If a business had a merchant account in the past that was closed due to excessive chargebacks or fraudulent transactions, this also will place the company in the high-risk category.

Business owners who do not qualify for a traditional merchant account may receive a high-risk merchant account. The high-risk merchant account offers the same flexibility as a traditional account, but with some exceptions.

• A high, upfront fee is required to open the account. A low-risk business typically pays a low fee to open an account and, in some cases, the merchant bank will waive the fee.
• A higher discount rate, also known as an interchange fee, which is paid to the credit card processor for handling the transaction. Low-risk merchant accounts typically carry an interchange fee of 2 percent of the transaction.
• High-risk merchant accounts also may have higher monthly maintenance fees and per-transactions charges.

Even in the high-risk category, there is some room for fee negotiation, so it always makes sense to shop around for the lowest discount rates and start-up fees.

If a high-risk merchant account is the only option offered to a business, it is up to the owners to lay out a long-term strategy to move to a more traditional account. These include:

• Being careful with both business and personal credit. Banks handling merchant accounts look at how the owners handle their own money as well as the company funds.
• Avoiding excessive chargebacks by making sure all employees know proper credit card validation procedures.

Maintaining a good credit card track record is an ideal way to move out of the high-risk category.

Article by Steven Bryan

Published: February 7,2023