A high risk processing account is a merchant account or payment processing agreement which is tailored to suit a business which is deemed high risk or is operating within an industry that has been deemed as such. These merchants usually need to pay higher fees for merchant services, which can increase their cost of business, affecting profitability and Return on investment, particularly 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 concentrate 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 which are having difficulty getting a location to conduct business.
Businesses in a number of industries are defined as ‘high risk’ because of the nature of their industry, the process by which they operate, or many different other factors. As an example, all adult businesses are regarded as dangerous operations, much like travel agencies, auto rentals, collections agencies, legal offline and internet based gambling, bail bonds, and a variety of other offline and online businesses. Because working with, and processing payments for, these companies can carry higher risks for banks and banking institutions these are obliged to sign up for a high-risk credit card merchant account that has a different fee schedule than regular merchant accounts.
A processing account is a bank account, but functions more like a line of credit which allows a company or individual (the merchant) to get payments from credit and atm cards, employed by the consumers. The bank that provides the merchant account is known as the ‘acquiring bank’ and also the bank that issued the consumer’s credit card is known as the issuing bank. Another significant component of the processing cycle are definitely the gateway, which handles transferring the transaction information from your consumer to the merchant.
The acquiring bank may also provide a payment processing contract, or the merchant may must open a high risk merchant account using a high risk payment processor who collects the funds and routes these to the account in the acquiring bank. Inside the case of the dangerous credit card merchant account, you will find additional worries about the integrity of the funds, as well as the possibility that this bank may be financially responsible inside the case of the problems. For this reason, high risk merchant accounts frequently have additional financial safeguards set up, such as delayed merchant settlements, where the bank holds the funds for a slightly longer period to offset the risk of fraudulent transactions. Another way of risk management is using a ‘reserve account’ which is actually a special account on the acquiring bank in which a portion (usually 10% or less) from the net settlement amount is held for a period usually between 30 and 180 days. This account may or may not be interest-bearing, and also the monies out of this account are returned towards the merchant on the standard payout schedule, after the reserve time has gone by.
Payments to some high-risk processing account are deemed to hold a heightened probability of fraud, as well as an increased risk of chargeback, refund, or reversal. For example, someone may make use of a stolen or forged credit or debit card to make purchases, or a consumer might try to execute an advance-authorization transaction (like renting an automobile or reserving a hotel), using a leayte card with insufficient funds. This boosts the risk for your bank and also the payment processor, because they will suffer from the administrative fallout of coping with the fraud. Ecommerce can additionally be a danger factor, because businesses tend not to actually see an imprint credit card; they take orders over the Internet, and this can up the potential risk of fraud considerably.
Each time a merchant applies for a merchant account having a bank, payment processor, or any other credit card merchant account provider, there are numerous things to consider before settling on a particular merchant provider. It is often easy to negotiate lower rates, and something must always request multiple quotes before choosing which dangerous credit card merchant account provider to use for their processing needs.