A Guide to High Risk Merchant Accounts
If you want to accept credit card payments for your business, it is important that you obtain a merchant account from an acquiring bank or any financial institution that processes credit card or debit card payments on behalf of a merchant. A merchant account can either be a low risk or a high risk one. Many of those who process credit card payments would rather deal only with low risk merchants because they see it as safe while high risk merchants are only provided for by a few processors. A high risk business is something where you expect a high number of chargebacks. The issuing bank issues a chargeback in protection of the customer. In other words, when a cardholder file a complaint regarding fraudulent transaction on their statement, the issuing bank makes an investigation into the complaint. When upon investigation it will be proven that the transaction is indeed fraudulent, the bank will refund the original value to the cardholder. So from the merchant’s point of view, if you do not prove the transaction to be legitimate, the bank will take back the entire value of the transaction from your account, along with an addition fee. The fee for chargeback will range from free to a hundred dollar but this will depend on the merchant bank sponsoring your account. However, if the cardholder complaint is proven untrue no refund is requested from the merchant, though additional processing fee may be charged.
There are several factors that increases the risk of chargebacks, one of them is the product or service that the merchant offers. It could come as a superficial factor based on the business’s industry or clientele, while others are directly related to the merchant’s business practices.
Low risk merchants are characterized as one who accepts one currency only, and that the items you are selling are considered low risk like books, office supplies, home goods or clothing. Chargebacks and returns are very minimum for low risk merchants. Casinos, gambling, gaming, VoIP or telemarketing, pharmaceuticals or drug stores, adults products or activities, travel accommodations, attorneys, dating services, magazine subscriptions, and e-cigarettes are just some of the high risk products and services today. The list above, however, is not considered high risk by all processors because they are deal with on a case to case basis, and you can also find businesses which are not in the list which are considered high risk by some processors.
Low risk merchant accounts can be terminated if chargeback levels are high. When this happens they can apply for a high risk merchant account but it comes with higher fees.
Whichever category your present business is in, it is important to remember that chargebacks affect much more than just the category of your merchant account. Fraudulent transactions will always hurt a business whether high risk or low risk.
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