We’ll admit it. We’ll field calls from merchants seeking high risk merchant services and after a few questions, sometimes the conversation takes a slight turn for the worse.
It’s because we’re honest about our merchant services – there is no point in anything less. The process of getting a high risk merchant account isn’t what it was five years ago. Acquiring banks are taking precautions, more than ever. It is all in the name of the acquiring bank protecting itself while taking a risk on a business.
It got us thinking about when and how the conversation with a prospective merchant goes slightly south, and we came up with five instances.
You’re considered a high risk merchant
Usual response: ‘I’m high risk?!? What does that mean?!?’
We’ve been offering high risk merchant services to businesses for nearly two decades, and we can anticipate most of the questions that a merchant will ask us:
- Rates: Vary with acquirer, industry, etc…
- Can we get this or that industry done? Depends on several factors.
- Payouts: How often are they? Again, depends on a number of factors.
Too often, we’ll be speaking with prospective merchants who are aghast at the news that he and/or his business is considered high risk to acquiring banks. Most of the time, we calmly explain that it’s nothing personal or even against their business, that some businesses are known for high instances of fraud (online pharmaceuticals). Some are known for high chargeback rates (tech support, subscriptions). Because of the risk that accompanies a business, merchants will pay slightly higher fees than they would a low risk merchant account.
You’re approved, with a six-month rolling reserve
Usual response: ‘A rolling reserve? Why?!?’
We’ll reiterate: when taking a risk in offering credit card processing services, acquiring banks need to protect themselves from several types of pitfalls merchants can get into. Merchants paying into a rolling reserve – for which they will later be compensated – is how the acquiring bank will protect itself from losses such as:
- Any chargebacks if the business fails (consumers have 120 days to file a chargeback)
- Any returns that the merchant cannot honor
- Any fraud losses for which the merchant is unable to compensate
After six months however, when a merchant (hopefully) has his/her business bringing in steady revenue, merchants begin recouping their rolling reserve incrementally over the next months.
The acquiring bank has a $199 setup fee
Usual response: ‘More setup fees?’
Every prospective merchant knows merchant account providers and payment processors charge setup fees, and merchants in need of high risk merchant services pay them. It’s part of the onboarding process.
When prospective merchants apply for a merchant account with a third party payment service provider, the PSP may be partnered with acquiring banks which charge their own setup fees, which can draw a degree of outrage from a prospective merchant. This is a situation where it’s best discussed beforehand between the prospective merchant and the PSP:
PSP: We’re going to align your business with Acme Bank, who specializes in your industry.
Merchant: Do they have additional setup fees?
PSP: Upon approval, they do.
Merchant: Could we arrange another solution and use Acme Bank as a backup?
PSP: Of course.
We apologize. We cannot offer a virtual terminal
Usual response: ‘Why? But I need the ability to take orders over the phone and through the mail’
Virtual terminals and MOTO solutions are great – they enable merchants to process transactions by mail and telephone order. However, acquiring banks find them very risky and prone to fraudulent activity.
Particularly in high risk merchant services, banks are leery of virtual terminals because they lack transparency – the bank cannot see exactly what the merchant is selling. Virtual terminals are highly sought after solutions for nefarious merchants who commit transaction laundering – the act of selling illegal and illicit goods under the guise of a legitimate industry. For example, a nutraceutical merchant could be selling legal and legitimate products online, but use a virtual terminal to sell illegal substances.
‘You need to register in the country in which you want to process transactions’
Usual response: ‘Why can’t I just sell over there? Why do I need to register?’
Required registration in another country or region, such as the UK or European Union, is a recent development over the last two years, thus we encounter merchants who find this to be a surprise. For a merchant to open their doors in the EU, for example, they need to have a physical presence in that country or region with the following:
- A physical office
- A staff member
- Telephone line
- An EU bank account
- Payment of annual fees associated with the office
For some merchants we’ve encountered, registering their businesses in other countries has been a game-changer – many merchants have paused the merchant account application process to rethink strategy. However, shortly after the stipulation was passed by the EU, we partnered with an EU company that offers solutions for company registrations.
We do high risk merchant services right
The five scenarios we listed above almost always take place via a telephone conversation. This is why we emphasize direct, one-on-one contact with prospective merchants to answer and discuss issues like these, to have clear lines for discussion.
High risk merchant services is a winding road. We’re happy to steer you through. Speak with a live merchant account manager today at 1-800-530-2444.
