The terms “Low risk” and “High risk” are the ones that you will come across frequently when evaluating various merchant accounts. Payment processors assess the creditworthiness before giving any authority to the merchant account.
Low-risk merchants, also commonly referred to as normal merchant accounts, enable businesses to accept credit and debit card payments for minimal charges. Once these transactions are completed and fees and refunds are subtracted, the remaining payments are transferred in full to the merchant’s business bank account.
On the other hand, High-risk payment processing accounts are specifically designed for high-risk enterprises. These types of accounts tend to have extra limitations that are not present in low-risk accounts. Moreover, it also has increased credit card processing costs. Some examples of these limitations are the requirement to maintain a rolling reserve and monthly processing volume caps. Continue reading this Pay.cc review to have a better understanding of the platform.
Differentiation Between High-Risk and Low-Risk Businesses
Both types of businesses tend to have some notable differences in terms and features between the merchant accounts classified as high-risk and low-risk. In addition to having cheaper per-transaction fees and, most of the time, no monthly account fees, low-risk merchant accounts also don’t normally call for a rolling reserve. Moreover, they tend to have fewer responsibilities under the contract, shorter contract terms, and no early termination costs.
However, when talking about high-risk merchant accounts, the users need to know about the monthly account fees, and transaction fee is also charged on individual transactions made. The use of a rolling reserve is also a must which is a practice where a certain percentage of every transaction is retained.
Longer contract obligations that are up to three years or longer are sometimes required for these accounts. In case of early termination or cancellation, the user will be subject to penalties.
Why Are Some Industries Considered Low-risk?
The low-risk industry is the one that tends to yield regular returns on investments for iGaming payment processors. Since the merchants do not have to face a high volume of chargebacks or complaints and also the likelihood of merchants disappearing without paying the fees is low, the iGaming payment processing service provider can now confidently offer its diverse services. Some examples of low-risk industries are food services, household goods, and health and beauty.
IGaming service provider takes into account features like the credit score and the duration of time that you have been in business when assessing your business. Those who are in the initial stages or tend to have a bad credit score tend to suffer more than those who have a solid history.
Why are Some Industries Considered High-Risk?
Certain industries tend to be classified as high-risk because they have more than the usual number of consumer disputes. The users tend to face more limitations including higher transaction costs if the igaming processors come under any of these categories.
In high-risk industries, maintaining a merchant account reserve is necessary, which is similar to a security deposit. If you fail to pay the required fees or penalties, your merchant account is closed, and money is withdrawn from this reserve.
Determining if your Business Qualifies for Low or High-risk Merchant Account
The industry that you operate intends to have a significant impact on assessing the level of risk. Some of the industries such as adult entertainment, gambling, and tech support tend to be classified as high-risk industries.
Being in the low-risk category is the best situation for any business. Not only do the low-risk businesses enjoy lower merchant fees but they also have access to more features which include point-of-sale solutions, a variety of payment methods, and currencies. Furthermore, it also has a higher likelihood of getting approval from their preferred iGaming payment processing service provider, and also they do not have any requirement to open a merchant account reserve.
In the event that you are determined to be at high risk, you still have options. The next thing you need to do is look for an iGaming payment processor that accepts merchant accounts with a high degree of risk. Most importantly, you want to find a merchant provider who provides full services at a reasonable cost.
Final Words
In some industries, high-risk merchant services are an unavoidable reality for organizations. For new firms, those with high transaction volumes, or those with a high volume of chargebacks, they can be used as a temporary fix. High-risk merchant accounts come with higher fees and stricter regulations, but they offer the crucial feature of being able to take credit cards instead of just cash.
When looking for merchant account providers, gather a lot of data that shows off your company’s strength, such as your monthly sales volume, chargeback ratio (which should be low), and credibility.
