What is a High-Risk Merchant Account?
Modern businesses provide customers with the option of card payments hence, the need for a merchant account.
A merchant account is an account which allows businesses accept credit or debit card payments and subject to approval by the financial institutions that power it.
The option of making payment via credit and debit cards has come to stay due largely to digitization and globalized business models which have made cashless transactions imperative.
Although high-volume businesses get lower processing rates and great contract terms from credit card processors, not all businesses are able to secure merchant accounts. The main reason for this restriction in the approval of merchant accounts depends on the kind of business being run.
Since merchant accounts are subject to approval, the underwriters for the acquiring bank and merchant processing company accesses the level of financial risks which your business is likely to generate for the parties involved.
Low-risk businesses find it easier to secure merchant accounts while businesses which are designated as “high-risk” are in for a rough time (that’s putting it mildly).
Are you thinking of starting off on a new business or maybe planning to secure a merchant account? Here are some reasons why your businesses might be termed high-risk.
- The industry you are in. Some industries are considered riskier than others: nutraceuticals, firearms, travel and debt collection among others
- Length of time spent in the business. In this case startups with little or no credit card history
- Your personal credit. An improved credit status makes your business less risky
- Likelihood of chargebacks. Some businesses are prone to these forced transaction reversals (chargebacks) that are caused by disputes over charges or claims of fraudulent services by clients.
- The location of your business. Home-based businesses are deemed the high risk to payment processors. In addition, the specific region which the business targets can cause it to be designated as high-risk. For example, businesses that target war-torn or conflict-prone areas.
For a business that ticks some or all of the boxes above, getting a merchant account approved is extra difficult because your type of merchant account is different than those operated by low-risk businesses. It is called a High-Risk Merchant Account (HRMA).
An HRMA is a payment processing account for businesses that are classified as high-risk services by traditional financial institutions. The designation “high-risk” complicates the process of getting a merchant account. This why some merchant service providers exploit the situation and make a killing from charging outrageously high rates and fees while stipulating draconian contract terms.
In essence, your business will undergo extra scrutiny and you will be required to fulfill (among others) the following conditions to be eligible:
- Your business must have a certain amount in cash reserves
- Your transactions will be limited to a certain number of transactions per month
Let’s put high-risk merchant accounts in perspective by relating them to one of the businesses listed above let’s say the firearms business. Better still, the online firearms business.
In modern business, the next step after establishing a business is to give it an online presence that exploits the opportunities the internet provides in order to augment its “physical” presence. The same philosophy applies to people in the business of firearms. Most modern gun shops now have an online counterpart.
But that’s only one part of optimizing the business. The other step is to get a merchant account which accommodates card payments. That’s the difficult part. That said, the firearms industry is a booming industry for people with online firearms merchant accounts.
However, it has become increasingly difficult for online firearms dealers to secure credit card processing for their businesses. This is because finding the right payment processing solution has become a problem for most. One of the reasons is that in most countries, the sale of firearms is regulated by the federal governments and so additional underwriting is required by the credit card processors.
Another reason is that since legal and banking regulations constantly shift and given the politics tied to the sale of guns, most traditional financial institutions do not want to be caught on the wrong side of the law, be it civil or corporate. Add high chargeback ratios to the mix and you get the picture.
Getting a High Risk Merchant Account for Online Firearms Sales
The first step in getting a firearms merchant account is finding a payment processor that can accept merchant account payments.
Although it is a given that you have limited choices and that some of those you find are likely to exploit you, misrepresentation of your business in order to land payment processors can lead to a termination of your account in the event of exposure.
So how do you get a high risk merchant account for online firearm sales? More importantly how do you get quality services given the limited options?
The first step is ensure that you are a licensed gun vendor because merchant account providers in this industry only process transactions between licensed vendors.
The next step is the search: offline and online. There are specialized credit card processors that offer customized payment processing solutions for online firearm merchants. Some of these processors even approve merchant accounts in less than 24 hours.
We advise that you contact as many processors as possible after which you review and compare their service offerings in other to find what best suits you.
One thing you should look out for is the amount of money that the payment processor intends to keep as cash reserves against potential chargebacks and refunds.
Keeping a part of your funds for this purpose is standard practice but the issue lies with how much; a significant amount may adversely affect your business.
You will also need the following documents (there may be others as per the payment processor) for your application:
- Valid, government-issued identification like a driver’s license.
- A bank letter.
- A secure, functional website.
- Your most recent bank statements within a given period of time.
- A chargeback ratio that is below 2%
- Your Social Security Number or Employer Identification Number
High risk merchant accounts can come with steep processing fees, particularly in the firearms sector. However, they will enable you to sell a wider variety of products and services to an international audience while allowing you to process higher sales volume for special sales.
Get approved ASAP with Blue Wave Merchant Solutions.