When it comes to setting up a merchant account for your business, it is important to realize that there are some accounts that are considered high risk. These high risk accounts fall into one of two categories:
- Businesses that are considered high risk ventures.
- Businesses that have had problems with merchant accounts in the past.
Often, high risk merchant accounts cost more than accounts that do not carry high risk. This is because account providers are taking a bigger risk by extending you an account – and the credit that goes with it.
High risk ventures
There are some businesses that are considered riskier than others. These businesses include categories that carry a likelihood of costs to the merchant if something happens to the business. Businesses that carry the risk of others getting hurt, or that extend products and services to people who may not pay. Here are some the types of businesses that are considered high risk:
- Amusement parks.
- Bail bondsmen.
- Collection agencies.
- Pawn and coin shops.
- Check cashing services and payday loans.
- Infomercials.
- Insurance salespeople.
- Door to door sales and multilevel marketing.
- Mortgage servicers and brokers.
- Dating, escort and massage services.
- Online jewelry sales.
- Credit monitoring and repair businesses.
- Cell phone providers and sellers.
- Timeshare sales.
- Consulting.
- Investment opportunities.
- Seminars.
- Used car sales.
- Gun sales.
- High ticket sales items.
- Home businesses.
- Weight loss centers.
- Travel agencies.
All of these businesses are considered high risk because the clientele or even the business owners may run into trouble down the road when it comes to paying. Additionally, many of these business categories include a large number of chargebacks and even fraud. Merchant account providers are taking on the risk of losing money when they agree to provide services for some of these types of businesses.
Past problems with merchant accounts
Even if you don’t have a high risk business, there are some instances in which you are considered a high risk to merchant account providers. If your past merchant account had a high number of chargebacks, or if you were late in paying your bills, or if you business did not meet the minimum charge amounts required by the merchant account, you might be considered high risk and have a hard time getting approved by a new merchant account provider. In these cases, you might have to pay higher fees in order to get service.
You can avoid falling into this category with the following actions:
- Instead of offering money back (resulting in a chargeback), have a clear return policy of exchanges and store credit. This way, you do not have to issue a refund.
- Make sure that you understand the terms and conditions of your merchant account agreement. Look for accounts that do not have a minimum transaction requirement.
- Look for a merchant account that is cost-efficient, and that you know you can afford. If you are a start-up (another area of high risk merchant accounts), try to work with a service provider that has special programs for new and small businesses.
A high risk merchant account is going to cost more than other merchants accounts. You should be prepared for that, or even look for viable alternative to a traditional merchant account.
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