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What’s a High Risk Merchant Account?

High risk merchant account is a payment processing agreement customized to fit businesses which are considered to be high risk or operating in an industry that’s considered as such. Most of the time, these merchants need to pay higher fees for merchant services which can then add to their business expenses that affects their profitability and ROI. This is felt mostly by companies and businesses that operations were reclassified in high risk industries and were not yet ready to deal with the costs involved in operating as a high risk merchant.

There are some companies that are specifically specialize with high risk merchants by providing competitive rates, lower reserve rates and/or faster payouts. All of these are designed carefully to increase people’s interests.

Businesses in varieties of industries are deemed to be high risk mainly because of the nature of industry they are in, the method which they’re operating or several other factors. As a quick example, any adult businesses are high risk operation as are collections agencies, offline and online business, legal online and offline gambling, bail bonds, travel agencies and even car rentals. Since working with and processing payments for these said companies carry greater risks for financial institutions and banks, they’re obliged to sign up for high risk merchant account. With such, it carries a different fee schedule compared to regular merchant accounts.

Merchant account is simply a bank account but this functions more of a line of credit that has enabled an individual or the merchant or a company to acquire payments from debit and credit cards used by their customers. The bank that provides merchant account is called as the “acquiring bank” while the bank that issued the consumer’s card is referred as the issuing bank. Gateway is another essential part of processing cycle. This is handling the transfer of transaction information from consumers to merchants.

Acquiring bank might be offering payment processing contract or perhaps, the merchant might have to open a high risk merchant account w/a high risk payment processor. What the payment processor do is collect the funds and send it to the rightful account of acquiring bank.

In terms of high risk merchant account, there will be additionally risks about the integrity of the funds and also, the possibility that the bank may be in charge financially if ever a problem arises. Thus, high risk merchant accounts normally put in place additional security measures like delayed merchant settlements wherein the bank will hold the fund for a longer period of time to offset risks of fraud transactions.

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