A high-risk merchant account might be more expensive and might require stricter authorization before you obtain it, but all of that does come with certain perks. Expanded market reach, risk mitigation, or faster cash flow are the key benefits coming from using it. Do you want to learn more? Then read on!
What is a High-Risk Merchant Account?
A high-risk merchant account is a specialized payment processing solution designed to cater to businesses operating in industries with elevated risk factors. These may include sectors like adult entertainment, travel, pharmaceuticals, and more, but also might depend on the specifics of the specific business rather than of the whole industry.
What factors might affect a business being deemed “high-risk”? Take a look below.
Industry Nature
Certain industries inherently carry higher risk due to the nature of their products or services. Examples include online gaming, travel, and subscription-based services.
Credit History
A business’s credit history is crucial. Poor credit can contribute to a high-risk designation, making it essential for businesses to maintain a positive financial track record.
Additionally, this also means that most new businesses will be deemed high-risk, at least at the beginning of their existence.
Chargeback Ratios
Excessive chargebacks can flag a business as high-risk. Managing and minimizing chargebacks is crucial to maintaining a healthy merchant account status and avoiding needing to switch to a high-risk one.
Types of Payments
If you’re processing a lot of card-not-present transactions, you are likely to be deemed high risk. On the other hand, brick-and-mortar stores which do have access to physical copies of credit cards are more likely to use a standard merchant account (unless they fall into the other categories from this list).
The Benefits of a High-Risk Merchant Accounts
So, let’s take a closer look at the perks that come with a high-risk merchant account.
Expanded Market Reach
High-risk merchant accounts empower businesses to tap into markets that may have otherwise been inaccessible. By accepting a wide array of payment methods, including credit cards and alternative payment options, businesses can cater to a broader customer base, thus driving more sales.
Risk Mitigation
Contrary to common belief, high-risk merchant accounts are not solely about embracing risk; they are about effectively managing it. With advanced fraud protection measures and robust security protocols, these accounts provide businesses with the tools needed to mitigate potential risks, safeguarding both the business and its customers.
Improved Cash Flow
High-risk merchant accounts often feature faster payout cycles. This means that businesses can access funds more quickly, enhancing cash flow and providing the financial flexibility needed for operations, expansion, and investment. However, bear in mind that they might often require you to keep more backup funds in case of chargebacks, so you get your money flowing more quickly but in smaller amounts.
The Takeaway
As you can see, a high-risk merchant account has its benefits, so if your business is deemed “high risk,” it’s not the end of the world. It is an opportunity to pursue a different direction.
