Today, a merchant account is a special option for processor implementation and accepting payments for your goods or services from clients’ bank cards, for which you can use a payment terminal or make payments from cards remotely. Another option is to accept payments from the site. There are two types of merchants for trading purposes, which are named according to their degrees of risk – low and high. It’s hard to imagine modern e-commerce without the ability to pay for goods or any service with a bank card. In order to provide customers with such a tool, online entrepreneurs must first open a merchant account. Below we will look at the nuances and features of the functioning of merchant accounts with high and low risk.
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What Are low-risk and high-risk Merchant Accounts: Concepts, Differences And Basics Of Usage For Business
When connecting a payment gateway, merchants can receive a high-risk status either initially or due to certain circumstances. The level of risk for your business is assessed by the bank or other financial institution where you apply for an account.
- A high-risk merchant account is an account for processing payments to a company with an increased level of risk for the bank. Businesses with higher risks often face the need to process chargeback. Therefore, to be on the safe side, the bank can create a permanent reserve in the account. Reserved funds will cover a possible fee.
Before opening an account, we recommend that you determine the risk level of your business. There are general characteristics that allow you to determine which group your business belongs to. You will need a high risk merchant account if you plan to conduct the following commercial activities:
- launch of a ticket booking website;
- sell goods and services related to activities for adult audience (18+);
- become a car broker;
- do antiques;
- Forex brokers;
- launch online casinos, gambling;
- offer mediation services;
- online shop category with high chargeback ratio;
- dating website;
- provide debt collection services;
- offer the services of psychics, fortune tellers and astrologers;
- engage in international transportation and much more;
- telephony;
- sale of medicines, pharmacy niche;
- implementation of software that may potentially have copyright problems;
- psychiatry and hypnosis;
- counterfeit goods, electronic cigarettes and other dubious products.
SEO-services, money transfers, online games and some other areas can be also classified as high-risk businesses. Many payment systems refuse to work with high-risk projects because they do not want to ruin their reputation and be drawn into fraudulent transactions. Typically, most high-risk businesses are the companies involved in pharmaceuticals, travel and booking, cosmetics sales, gambling, etc.
A merchant account receives a high risk level also if:
- you have a large number of refunds of payments made, which is why you are included in a special list;
- you are new to the market and have little or no credit card transaction history;
- you carry out activities to sell your goods or provide services to your customers in those countries in which there is a high level of fraud, and most of those except USA, Canada, Western and Northern Europe, Australia and Japan are considered as such;
- you use more than one currency in your turnover;
- you have a bad or no credit history;
- sales volume exceeds twenty thousand US dollars per month on average;
- one transfer from a card averages more than five hundred US dollars;
- the sale of your goods is seasonal or has any other frequency;
- your activity is related to an area that often brings high income and returns on payments made.
It is more difficult for businesses with a high risk of chargebacks to become a bank client. The identification process and due diligence check takes longer and requires the provision of a large number of documents.
- So, now let’s talk about low-risk merchant accounts. This type of account has its own characteristics, which include next-mentioned.
- The average monthly amount of funds received as a result of sales does not exceed 20 thousand US dollars.
- The average transfer size via credit card does not exceed 500 USD.
- When conducting transactions, a party accepts payment exclusively in one currency.
- The payment page is hosted directly by the payment service provider.
- Your goods are low-risk goods, for example, books or stationery, clothing and other goods, including household goods, and low-risk books.
- You live in a country that belongs to a low-risk group (this list mainly includes Western countries: Canada, the USA, European countries, as well as Japan and Australia).
- To prevent the activities of intruders, you agree to use the 3DSecure service.
In addition, the requirements include minimum refunds of payments made and goods sold.
Risks are assessed by acquirers mainly considering returns ratio. First of all, it is worth saying that determining risk is a rather subjective process, which relates to one of the areas in the field of activity called acquiring.
But at the same time, absolutely every business and every case is considered, therefore not all of the specified areas of activity can always be considered a high risk. But this also means the opposite: businesses not listed above may be considered risky.
Requirements For Merchants From Payment Systems
When implementing the option to connect acquiring and opening a merchant account of any type, payment systems require that the client be not an individual, but an official entrepreneur preferably registered in the form of a company. In addition to legal status, international payment systems require that the seller’s website or mobile application meet the necessary parameters. The speed and success of opening a merchant account directly depends on the quality of preparation of information for a financial organization. The key here is the completeness of the package of corporate documents, information on directors and beneficiaries, the presence of specialized business experience of the beneficiary or experience of conducting the declared activities of the company itself.
A short list of what the requirements are is given below:
- all pages of the website or mobile application work normally and open without errors;
- all products in the catalog have descriptions and characteristics;
- your business activity corresponds to the area specified in the registration form;
- there is information on the delivery/return of goods or services and a detailed description of how this process occurs;
- your customers can easily find the contact section with up-to-date information.
Our experts will provide you with an in-depth and thorough assessment of your business, and will help you choose the most optimal type of merchant account for you, as well as provide support in opening one. Our knowledge and experience are the tools to achieve the most effective results for you. Contact us right now.
Article’s author is Denys Chernyshov – founder and CEO of the leading international law firm Eternity Law International.
