High-Risk Credit Card Processing

How a High-Risk Account Differs From a Low-Risk Account

A high-risk merchant account is ideal for business ventures that sell products that come with a known risk factor. While these products are desirable, they tend to attract customers who are more likely to engage in credit card fraud. The client might use a stolen credit card account or open a dispute that results in a chargeback of the sale while keeping the product. The result is the same for the high-risk credit card processing provider and business: lost income. Getting a high-risk merchant account has both pros and cons; find out why the benefits eventually outweigh the drawbacks for increased income.

How a High-Risk Account Differs From a Low-Risk Account

How a High-Risk Account Differs From a Low-Risk Account

Image via Flickr by tinafranklindg

Traditional merchant accounts, also known as low-risk accounts, tend to have fewer chargebacks since the products being sold aren’t placed into a questionable category. This placement is almost a guarantee for the merchant service provider that hassles won’t get involved in the process. In other words, the customer has every intent to pay for purchases when the credit card statement arrives. High-risk credit card processing comes with a higher likelihood of the customer trying to get the product without paying for it.

A low-risk account has a low percentage of chargebacks, and the merchant service provider relies on that fact to keep losses low and trouble-free transactions high. The provider puts a stipulation into the account agreement that the business owner sells only products that won’t attract fraudulent purchases, also known as morally questionable items. If the merchant develops a pattern of chargebacks, the processor has the right to end the account, whereas someone with a high-risk merchant account takes the potential losses into consideration and won’t end the account.

The Cost of Opportunity

A traditional merchant account comes with fees. The account provider removes only processing and service fees from all transactions. A high-risk merchant account has more stringent requirements and higher fees.

When a chargeback happens, the provider takes the money back from the account holder, or business, and refunds that money to the customer. Since this situation is intended to happen infrequently with the low-risk account, the provider doesn’t need the account holder to keep a balance in the deposit account. In contrast, a high-risk account holder has to keep a specific amount in the account at any given time for up to six months.

A high-risk merchant account provider requires up to 5 percent of average monthly transactions to be set aside for chargebacks. This amount plus the length of time the money must remain in the account means the business has to wait longer to receive its money. Processing and monthly fees are also higher with a high-risk account. However, the ability to accept credit cards increases sales, which can overcome losses and retain money.

Over time, having a high-risk merchant account is more beneficial than not having one. Growing the customer base is the goal of every business and the best way to increase that customer base is to make it as easy as possible for people to buy merchandise by accepting credit cards.


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