High Risk Merchant Accounts
High Risk Merchant Accounts
When applying for a merchant account, your business will be assessed in terms of 'risk' by the bank or acquirer.
If you operate in a ‘high risk’ sector or have been denied by a bank in the past, then a 'high risk' merchant account could enable you to accept card payments.
Gala Technology have extensive relationships with 'high risk' merchant account providers and a range of multi-award winning solutions to build the right package for your organisation.
What is a High Risk Merchant Account?
When it comes to assessing risk, a financial provider/acquirer will look at both the business in question and the sector it works in.
They may even look into the credit worthiness of the company owners or directors.
If a company goes out of business before they can fulfil the order/booking, the acquirer assumes liability. This means that their is significant financial risk for the acquirer.
Therefore industries that have a delay between payment and delivery, such as furniture or travel, tend to be deemed as higher risk.
Financial institutes invest and rely heavily on reputation, and so any activities that could jeopardise this could also be deemed high-risk.
Some consider sectors such as Adult, CBD, Supplements and Gambling as high-risk to their reputation, as despite being legal, can be frowned upon by the wider audience.
Some sectors are also heavily regulated, which leads to the risk of the merchant, sometimes unknowingly breaching regulation or law, which again can have reputational risk and damage for associated partners.
Examples of 'High Risk' sectors include:
CBD Oil or Cannabis Seeds
Drug, Supplements or Herbal Remedies
Furniture (with long lead times)
If your business is deemed 'high risk' by the merchant account provider, is it likely that the mainstream account providers will deny your account application.
That is where Gala Technology can help, by reaching out to our network of high risk merchant account providers.
Other considerations for a high risk account is the business itself, its owners and directors.
Questions that may be asked are:
How financially stable is the company?
What is the trading history of the company?
What is the length of time between order/payment and the delivery of goods/services?
The credit worthiness of the directors and owners?
How can you increase your chances of having a high risk application accepted?
There are a number of things that you can prepare to give your business the best chance of being accepted.
Minimise Fraud and Chargebacks
The more chargebacks a business comes with, the higher the risk. Hence, the main factors that matter are industry reputation and processing history.
You do not want to have an reputation for selling inferior products or providing poor service as that can heavily influence the decision of the financial institute and can be easily viewed with internet searches and social media platforms.
If you would like to know more about chargebacks, please visit our advice hub.
Terms are Conditions
It is likely that the merchant account provider will ask to view your terms and conditions of business, so ensuring that your terms and conditions fair, visible and are fully compliant with the legal framework of regulatory practices and restrictions, will help convince potential suitors that you won’t cause issues down the line. Having solid terms and conditions in place can help support your business minimise returns, refunds and misunderstandings with your customers.
Up to date Accounts
Having your accounts up-to-date will go a long way to proving your current financial stability and the professionalism of your senior team.
What is the difference between a high risk account and a 'normal' merchant account?
As detailed above, if you require a high risk merchant account, then the account provider is exposed to more risk themselves.
That can therefore come at a price which may include:
Higher Set Up Fees
Higher Transaction Processing Fees
Longer Settlement Times
Due to the associated risks, many high risk merchant account providers will charge the merchant higher set up and transaction processing fees, but if your business requires the ability
to process card payments this may be the only route to go down.
Some providers will also delay settlement times, where they hold on to your funds for longer than 'normal' merchant accounts. This means it may take a week for the funds to land, so you should factor that into your business plan and cash flow management.
In addition to longer settlement times, some account providers may insist on rolling reserves, which can be used as a risk management tool. A rolling reserve is a type of cash reserve that withholds a small percentage of all of a merchant’s gross sales in a non-interest-bearing account for a predetermined amount of time before releasing the funds to the merchant.