Top 10 Ideas for High Risk Businesses to Consider when Applying
E-commerce stores have grown massively over the years, thanks in part to the many payment processors that catered to each business’s need. And because of this, the use of credit and debit card has grown to be more of a need, than its previously privileged status. Here are some ideas for high risk merchants to consider when applying for a merchant account.
It’s not always easy for all types of businesses to get a merchant account and start accepting online transactions. Those in the industry of gaming, pharmaceutical, firearms, cryptocurrency and even hospitality may have more challenges in obtaining a merchant account compared to other industries.
These businesses mostly fall under a grey area or are highly susceptible to chargebacks and fraud. And because of these risks, many card networks and banks decline applications for merchant accounts. In some financial institutions, a higher rate with a much unappealing term of contract will be offered to them.
Before deciding on getting a merchant account for your high-risk business, take the time to read these ten things you should keep in mind.
- The type of merchant account provider that suits your business
There is no one size fits all solution for all kinds of trade. It’s going to be different for every industry. And with that, you have to find the right type of merchant account provider for your business. You have to understand the nature of your business and the types of payment methods you need in order to find the most appropriate high risk merchant service provider.
Are you accepting credit card payments alone or will you accept cryptocurrency as well? You have the option to get two separate merchant accounts to process either payment methods, or you can be given a single account that accepts both.
- Which Merchant Service Providers (MSP) to choose for your business
MSPs are expected to charge an additional one to two percent for every transaction made. But on top of that, you can assume that you will be required to keep a reserve. These are the types of reserves your business might fall under:
- Fixed Reserve – the MSP will withhold a percentage of every transaction until you reach the agreed amount of total reserve in your contract. There is no definite period for the deductions and the MSPs can withdraw an amount from the reserve in which you would need to reload the amount again until the capped amount is met.
- Up-Front Reserve – a fixed reserve amount is set based on your expected transaction volume. This is the up-front reserve balance that you have to meet as you start the partnership with the MSP.
- Rolling Reserve – this is a conservative strategy that’s more often used by banks. They withhold a specific percentage from your daily profit for a fixed period, but will gradually release the funding after a given period. This is designed as a buffer system to protect the MSP from losses.
- Processing rates, fees, and contract arrangements
Different types of merchant accounts are charged with varying amounts of fees. Some processors would charge a flat rate for credit card payments, while others would add an additional percentage fee for every transaction made. The funding period is also different for every payment method. These factors are one most important ideas for high risk businesses as these costs can consume big parts of revenue.
It could take as early as 48 hours to five business days depending on the type of payment. Read the terms and conditions on your arrangement with Merchant Service Providers (MSP) for the processing rates and fees that you will be obliged to cover.
- Duration of your merchant account application
Depending on your MSP, the duration in which your application is considered for approval or rejection is different. There are MSPs which offer an instant approval merchant account and there are those that also take a couple of business days. The type of industry you fall under is another factor for the duration of the application process. The duration of your contract also matters. Ideally, a monthly basis contract is advantageous for your business.
- Do you have a business bank account?
You will be required to have a designated business bank account before you can be approved of any high risk merchant accounts. This still applies even if you do not have employees under you or if you are running a sole proprietorship. You will need to present your business license as well as your Employer Identification Number (EIN) to be able to open an account.
It is important for this bank account to have sufficient funds that can cover any processing fees and monthly dues that are credited to your account. The funds collected in every profitable transaction is directed to this bank account.
- Do you have the right documents to get approved?
Business documents will be required on your end especially if you are aiming to transact in high amounts and in high volumes. This can be your previous banks statements from the last three to six months, business models and marketing materials, your balance sheets, business license, and other valid identification. Any document that is submitted to your MSP has to be consistent with your actual business plan. Avoid exceeding processing limits which can get you additional charges or account penalties. Be truthful, as banks have thorough Know-Your-Customer (KYC) processes, and they will be able to dig up all your banking records and credit history.
- What equipment do you need for your business?
Keeping these ideas for high risk businesses in mind can help longterm. The hardware and software system are vital to your trade as well. Will you use the standard Point-Of-Sale (POS) terminals, EMV credit card terminals, or the newer contactless payment Near-Field Communications (NFC)? There’s the mobile payments system as well. These are just a few of the hardware selections you have that will channel the payments to your merchant accounts, and enable you to serve more customers.
- Compliance to legal regulations and licenses required
Complying to Payment Card Industry Data Security Standard (PCI DSS) regulations are mandatory, and will benefit you in the long run. This wouldn’t be an initial requirement while opening a merchant account but every business is expected to follow their rules and regulations later on. This was set to protect your customers and their payments. The ways in which you can comply can be completing the PCI DSS due diligence checklist, such as shredding documents with sensitive information, setting up anti-phishing applications, or securing a virus protection software. Your payment processor should be able to guide and educate you through the process, and helping you get your PCI DSS certification according to your business level.
- Where and how to start your application for a merchant account
Getting a merchant account starts with you sending out your application to any MSP of your choice. These days, you can already start the process online. It will only take a couple of minutes to accomplish without having to send out physical copies. The information you have to provide can be either but not only limited of the following:
- Employer Identification Number
- Routing numbers of bank accounts
- Estimated processing volume
- Starting date of your business
- Authorized signatory information
- Customer support system for your business
The after sale protocol for your business is just as important as your merchant account. Any problem regarding additional unexplained charges, payment errors, or faulty terminals should be addressed by a well-trained customer service from your MSP. This is one way to keep your chargeback rate at bay. On top of that, you can add an FAQ page so your customers can find information anytime, even during non-business hours.
EU Paymentz will work with merchants to help them operate their business for success. The above are some ideas for high risk merchants to consider when setting up their businesses. Merchants with any questions are encouraged to reach out to our team for answers.