What is the difference between high risk and low risk merchant accounts?
A merchant account can help you increase your business’s potential. It allows customers to pay in multiple ways. Both you and your customers will be able to accept credit and debit card payments. A merchant account is not for everyone. Banks and payment suppliers must evaluate your application carefully before approving it. These risks will determine which type of account is opened.
Every business faces risks. When you apply for a merchant account, these are your financial liabilities. These liabilities can be viewed as the risks your company poses, based on the nature of your business or the customers you do business with. These risks must be evaluated by third-party payment processors if they want to protect their investments. A merchant account will cost you more the higher your risk. You could be denied for your application if you take on too many risks.
There are two types of risks: high risk merchants and low risk merchants. The factors that influence the evaluation of risks include the length of your business’s existence, its reputation, financial health, and industry. You can also consider other factors to determine the category of risk that your business is in.
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Being classified as a high risk merchant account
You may be a high risk merchant if your company exhibits any of the following characteristics.
- A new business can be started without having a long history or a good reputation.
- A high level of fraud can be difficult to deal with
- Financial instability
- Working in an industry that has a high rate of chargeback
- Merchants with poor credit
- A majority of your products can be sold well in advance
- Consuming products or services after the fact
- Accepting payment in different currencies
Being tagged as a low risk merchant account
It’s not always about how much liability the business poses to the payment processor. A low risk merchant category includes any business that does not fit the criteria of the other.
A low risk merchant is known for:
- A monthly income of less than $20,000
- A low or zero chargeback rate
- You can work in an industry with very low risks
- A ticket size of less than $50 is a good idea.
- You can operate a corporation in a state with low risk
Opening a Merchant account
Your eligibility for merchant accounts will depend on the risk level of your business. high risk merchants will be subject to higher fees and additional charges. Because the merchants are more risky, there are fewer payment processors who work with them. Merchant Stronghold is a payment processor that will not exploit high risk accounts. It has lower costs, reliable banks partners and faster approvals than other companies.
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Reduce your risk
Although you cannot control the industry risk, you can influence many other factors that could make your company high risk. Fraud potential, and chargebacks are two of the most important factors when evaluating companies. These are areas you can reduce proactively.
- You can reduce chargebacks by sending all orders promptly. You need to establish credibility if you’re a new business. This can be done through customer reviews, the Better Business Bureau and loyal customer referrals. Customers who do not receive their orders will not pay for them. Ensure that delivery happens on time and track each order.
- Promises that you cannot keep are not worth keeping. While you want to impress your customer with great promises, if they don’t get it or aren’t satisfied, they won’t be willing to pay for it. You can’t guarantee a shipping date to be competitive with Amazon. Just make every effort to ship the items as quickly as possible and notify customers if there is a delay.
- You should monitor your e-commerce activity. Online fraud is rampant, so you should be very vigilant about your transactions. You should be suspicious if your shipping and billing addresses are not correct. Before you place an order, it is wise to verify or ask for confirmation. To verify authorization of the card, you will need to have a billing address as well as your complete credit card number. Additional security measures can be taken to prevent theft of credit cards and avoid chargebacks.
Merchant Stronghold is a trusted provider of payment processing services for high and low risk merchants. Trust the assistance of a global provider to payment processing.