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High-risk merchant account services are those offered to businesses classified as high risk (hence the name). Businesses receive this classification for a variety of reasons, typically because the business owner has a low credit score or the business itself is relatively new and has no real credit history. When this happens, high-risk merchant services provide a merchant account but charge higher rates than the industry average.
Your business may be classified as high risk for a number of reasons, but these four are the most common:
- Bad credit: This is the most common reason businesses receive high-risk classification and includes both bad credit and lack of credit.
- Offshore business: Companies based in countries outside of the U.S. are often considered high risk.
- Legal gray areas: Even if the product you sell is legal, some industries contain legal gray areas (such as companies that sell weapons or drug paraphernalia) that cause financial services to classify your business as high risk.
- Flawed business practices: If your business uses inefficient sales and marketing tactics or demonstrates improper management or questionable ethics, you may be labeled high risk.
What Are High-Risk Merchant Services?
Even if your business is labeled high risk, you likely still need merchant accounts and credit card processing services. High-risk merchant account providers offer these financial services regardless of your industry or credit history, allowing companies to process credit card transactions, ACH payments, and more. To offset the risk the financial provider takes, it charges a higher rate.
Points to Consider when Looking for High Risk Merchant Services
- Security: Like other businesses, you have to worry about fraud and chargebacks. Ask the provider what type of protections it offers. You should also check past customer history and run service checks to verify.
- Rates: Though you face higher rates when working with a high-risk merchant account, you still have the power to compare providers and negotiate better rates. Also, look at the industry standard and the average rates for businesses not classified as high risk to ensure your comparisons are valid.
- Services: What services does the financial provider offer? You need to make sure it meets both your needs and your customers'. In addition, you need to understand what services the provider's rates include before comparing their offers.
Sample Prices of High Risk Merchant Services
Generally, the rates and/or fees chargeable for most high-risk merchant accounts are quite high, especially when compared to those charged for standard merchant accounts. Expect to pay a setup fee, higher minimum monthly fees, and heavier cancellation fees. Request quotes from multiple service providers to get the best rate.
Though rates vary widely according to your industry, area of the country, and the reason you received high-risk classification, the following estimates offer a rough idea of what you can expect to pay.
- The merchant account application fee is typically nonrefundable and ranges between $100 to $300 on average
- Credit card processing averages between $50 and $200
- Programming averages between $50 and $100
- Adding a feature that allows customers to pay via online check averages between $200 and $300
- Setup fees vary by credit card provider:
- Discover's setup fee averages around $40
- American Express's setup fee averages around $55
- Credit card transaction fees range between 2 and 4 percent, considerably higher than standard merchant accounts