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A Brief Explanation About 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 strongly felt especially among companies that were reclassified as being in high-risk industry and weren’t prepared to deal with the associated cost of operating as high risk merchant.

There are companies that specialize specifically 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. To give you an example, all adult businesses are deemed to be high risk operation as are auto rentals, travel agencies, legal offline as well as online gambling, collections agencies, bail bonds and several other offline and online businesses. And due to the reason that it is riskier for banks and financial institutions to process payments for the said companies, it mandated them to sign up for a high risk merchant account. Because of this, it is carrying varying fee schedule in comparison to the regular merchant accounts.

Merchant account is the bank account but this serves more as a line of credit that allowed an individual or merchant or a company to receive payments from the customer’s debit and credit cards. The bank that is providing merchant account is referred to as the “acquiring bank” and the bank that has issued the consumer’s card is known as the issuing bank. Another essential component of processing cycle is gateway. This handles the transfer of transaction information from the customer to the merchant.

Acquiring bank can offer payment processing contract or the merchant may need to open high risk merchant account w/a high risk payment processor. This payment processor will be collecting the funds and reroute them to the account of the acquiring bank.

In case of high risk merchant account, there are going to be additional risks regarding the fund’s integrity and possibility that the bank might be financially accountable in case of problems. 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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