How To Determine If You Need a High Risk Merchant Account

A high risk merchant account is sometimes the only clear alternative.

In the last few years, many merchants pursuing their company Merchant Account were often declined because of the “Merchant Type” category.

Of course the normal main stream banks or main stream merchant account providers declined any merchant who didn’t fit the strict criteria of:

1. 2 years in business

2. 100% swipe

3. Store Front

4. Good credit

However, many of the “middle risk” merchants found themselves lumped into the higher risk and sometimes “extreme risk” merchant category. A high risk merchant account for extremely risky merchants might include:

1. Gambling/gaming

2. Tobacco Sales

3. Adult material

4. Time share sales

5. Stock trading

6. Annual subscriptions magazines and membership fees

7. Internet Computer sales

8. Internet large ticket electronics

9. Internet Travel and cruise booking

10. Network Marketing Companies

11. Dating Internet Service

12. Out Bound Telemarketing

13. Future delivery over 90 days

14. International sales

15. Software downloads

16. Seminars

17. Internet high end Jewelry

18. Poor credit merchant

19. Hypnotherapists, Psychologists, Psychiatrists

20. Credit repair

21. Collection Agency

A middle high risk merchant account merchant might be included in the following list:

1. Internet sales of most products when drop shipped

2. Products sold and delivered within 90 days

3. Bail Bonds

4. Telecommunications

5. Software sold on a CD

6. Internet Electronics such as I pods

7. Internet Diamonds Jewelry with store front

8. Fair credit merchant non-face to face

9. Network Marketing individual distributor

10. Internet services/hosting

11. Furniture stores

12. Computer stores

13. Door to Door Sales

14. Sales through conducting parties

15. Nutraceuticals (internet)

16. Internet gold Jewelry sales

17. Internet Art Sales

18. Internet collector coins/stamps

19. Weight loss or quit smoking systems

20. Concierge companies

High Risk: What to Expect

Merchants in the higher to extremely high risk profile category should expect to get declined by most companies unless those companies advertise that they approve your particular business type.

See Unacceptable Biz list. When the business type is approved in the higher risk categories, merchants might be asked to withhold a percentage of their processing in a non-interest bearing reserve account to be used against possible charge backs. This helps the processor soften the risk and will often result in the merchant receiving higher volume allowances for their merchant account.

High volume allowances for your high risk merchant account is a big benefit as it means you will not be capped on the amount of bankcard business you can accept. It predicts where the money will go instead of the unpredictable occurrence of the bank suddenly grabbing an arbitrary amount of funds to ease the bank’s risky position.

Many High risk merchants should also expect to pay 1%-3% higher merchant account fees until they establish a history of transactions. After 6 months, a great deal can be understood from a history of transactions and if the merchant’s profile is clean (low charge back levels) then the merchant may negotiate a lower rate. The merchant may negotiate an end of daily reserve requirements or a partial release of money already held against possible charge backs. This is the classic reward for a high-risk merchant who has worked at and succeeded at keeping the risky nature of their business in check. Basically, the high risk merchant account no longer seems risky.

High Risk: Which Company To Trust

High-risk merchants should look for companies that collect start up fees only after you have been approved. Proof of approval is usually a congratulatory letter from the acquirer (merchant account company) or bank with your merchant number.

Ensure that your account has been furnished with your own merchant account number and not shared with another company’s merchant number. Using someone else’s account, if not a designated “master merchant account” by MasterCard/VISA (like a Pay pal) is illegal and is a Federal offense. Offending companies or merchants could be shut down permanently and their funds made frozen.

I recommend going with companies that have a simple message and that specialize in High-risk merchant accounts. Look for references and check out their years of experience. Are they new at submitting accounts or have they been around for ten plus years packaging applications for approval? Are they experts in the merchant account industry? Do they have multiple banks in which to send your account? In the end, experts get the job done and give you the highest chance for approval.

High Risk Merchant Account Builds Good Credit

To apply for a high risk merchant account click Did you know that your high risk merchant account builds your credit? Well it does.

As your credit card acceptance grows above the initial monthly volume, you are adding to your business credit. Many merchants use their high risk merchant account company as a good reference when applying for other forms of credit. Merchants may be eligible for Cash Advances against future credit card receipts once the merchant account has been established for 6 months!It all begins with merchant account providers that will approve you.

With us you have a good shot at being approved for a high risk merchant account and we appreciate the opportunity to earn your business.

Avoid Being “Terminated”

Smart High Risk Merchants Know the 5 Ways to Avoid Being “Terminated”

High risk merchants must be extremely diligent at avoiding termination. Merchant account providers have a hair trigger response to any issues. Merchant account termination in most cases means an immediate loss of your merchant account and a “freeze” on all funds. Losing your high risk merchant account is costly to say the least.

One medium high risk mail order merchant I knew of had accepted a credit card for the purchase of his old car right out of the backyard. Since the merchant was supposed to be selling cleaning chemicals at a considerably lower average ticket, a sudden $2,500 transaction set off the bells and whistles at the merchant account provider. The merchant told the provider that a friend bought his car and had paid him with a Visa. “It was completely legitimate” NOT!

The merchant had violated his merchant contract big time in the following ways:

1. Merchant accepted a card purchase well over his allowed average ticket 2. Merchant sold something way outside his normal business activity I.E. he sold a used car instead of cleaning chemicals. Wrong Business Type.

This merchant was somewhat high-risk to begin with because he was not “swiping” the credit cards through an electronic reader; but punching the card data in manually. He was approved for manual entry but he was still classified as “medium high-risk”. This means one hiccup and he would be jumped on fast by merchant account providers. The merchant was also new to accepting credit cards so there was no prior history of his routine activities. There was no transaction history. No Trust established. No one had explained to this merchant why not to mess with his high risk merchant account. Therefore, the merchant was TMF’ed (terminated merchant filed).

The TMF designation (Terminated Merchant File) means that the merchant, his contact information, business information, security numbers are how on File with the Bankcard companies. This information is shared with every bank and merchant account company in the country. Per Bankcard rules, TMF merchants are not allowed to be approved for credit card processing and any company that accepts them will be open to large fines.

The good news is that the TMF designation used to be permanent. However, new rules are now in effect allowing merchants to get released from the TMF file. The merchant must wait a full five years from the TMF date. It’s not an automated process, though. The merchant must ask to be taken off the TMF from the original banking institution based upon the 5 year rule.

The value of an existing merchant account to a high-risk merchant is BASIC SURVIVAL!

Smart high risk merchants have learned to protect their high risk merchant account in the following 5 ways: 1. Avoid charge backs at all costs.

High-Risk merchants may have a no refund policy but if a cardholder threatens to charge back, the merchant should always credit the merchant upon return of the products.

If the merchant is providing a service such as month to month hosting or some other subscription service, credit the cardholder back no matter what the contract says. You can always go after the cardholder in civil court if it makes sense.

Charge backs cost money (usually $35 when coupled with the retrieval fee asking you to retrieve any records of the sale that’s being charged back). However, the biggest negative is that charge backs leave a black mark on your merchant account history.

If you incur too man Charge backs (over 2%) the bank may warn you or even arbitrarily grab money from your account and place it in a forced reserve account to be used against future charge backs. If Charge backs reach 3%, there’s a good chance that your merchant account will be placed on the “Watch List” at the bankcard companies. Over 3% and its likely that the account will be terminated immediately and unable to get another account anywhere in the country for the next 5 years.

2. Assign one person to handle all disputes.

One dedicated person whose main hat is to handle and resolve all disputes as a priority, will keep charge backs low and build you a strong merchant profile. If they do a great job, take them out to lunch and “feed” them gold.

3. Ensure that you keep tabs on any major volume increases.

If you have a very successful marketing campaign, you may be in trouble. High volumes mean "high risk" to your high risk merchant account provider. Call the provider and give them any financial data they require. Be proactive.

The Merchant Account provider may require a small reserve (5-10%) to be held back against possible charge backs. However, if you have maintained your account and have a clean record (under 1 % charge backs), then the merchant account provider may not have any challenges with the higher volumes. Remember, reserves allow you to have higher volumes. You don’t have to worry about the provider suddenly holding funds because of much higher volumes. It gives you prediction instead of unwanted surprises.

4. Take no Credit Cards from Foreign Countries.

Beware! Many merchants have been frauded and scammed by cardholders in foreign countries. The bad guys have gained the merchant’s trust through earlier (usually smaller) transactions.

For example, you sell an expensive TV for cash to someone in Russia. Now they want 6 of them but need to place the order on a credit card. This is a typical scam. If you send the order out (even if the card was approved) it is likely that you will get burned big time! If the order is in deed fraudulent, you have just lost the following:

A. All of the products

B. All of the money (as the card will be charged back)

C. The shipping costs

D. Taxes

E. The processing rates

F. Charge Back fees

G. Time and effort

H. You’ll probably be terminated as a Merchant account holder

5. Do not Mix Products that have other Business Codes.

For example, you are selling costume jewelry over your web site. Your average ticket is $50 for each card holder. You decide to suddenly sell computers under your business name and the average ticket is $1,800. Guess what, you have just prompted the merchant account company to hold every transaction and investigate all your sales.

Selling computers over the internet is judged to be “extremely high risk” (too much fraud). Your high risk merchant account could now be shut off permanently (at least 5 years) and all of your revenues held for 6 months because of the following violations:

A. Wrong business Code (declined type of business)

B. Wrong Average ticket

C. Extreme high risk

The main point is to avoid the above practices and take care of your Merchant Account. Always stay in good communication with your merchant account providers about any significant changes you are planning to make. Build a clean record and prosper.

Lawrence Sherman Cohn