If you are a business owner or manager, you’re probably interested in being able to accept credit and debit card payments from your customers. However, depending on the type of business you are operating, you may not be able to acquire a normal merchant account, but can instead acquire a high risk merchant account. These accounts are designed for businesses that are deemed high-risk for a variety of reasons. Let’s look at five of these reasons:
- Poor Credit or Financial Statements
If the bank that you are applying too for your merchant account sees that your personal credit is poor, or that the financial statements of your business are not indicative of the amount of sales volume you want with your account, then your business may be considered high-risk. Merchant accounts are usually personally guaranteed, and if the guarantor has poor credit, the business is unlikely to receive a merchant account.
- Your Business Has Longer Chargeback Periods
A chargeback happens when a customer disputes a credit card charge, and the disputed amount is taken from the merchant account while the issue is resolved. Businesses can respond to the dispute within 30 days, although usually a handling fee is charged by the merchant bank for handling the transaction. Any business that issues annual memberships to its customers usually has a longer chargeback period, up to 18 months after the membership began. Industries that have traditionally had are large amount of chargebacks also tend not to able to receive merchant accounts, as banks are worried they will have to spend a disproportionate amount of time handling the large volume of chargebacks.
- Your Merchant Account Has Been Previously Terminated
If you have had your merchant account terminated in the past, your business will be placed on the TMF list, which is a blacklist of merchants. Businesses are usually blacklisted because they violated the terms of their merchant account. Being on this list will probably make your business unable to qualify for a merchant account.
- Other High-Risk Factors
Businesses that deal with certain kinds of goods, like deliverables (hotel reservations) or expensive items (custom car parts, furniture) can be considered high-risk. Any industries that carry some kind of risk with regards to their reputation, such as the adult entertainment industry, can also be considered high-risk.
- Traditionally High-Risk Businesses
Some of the other businesses that are typically considered high-risk include bail bonds services, the online sales of electronics, debt services, horoscope and fortune tellers, firearms dealers, mail and telephone order product sales, multi-level marketing services, online auction websites, downloadable software vendors, telemarketers, telecommunications (such as voIP and calling cards), timeshare advertisers, and travel agents. These industries typically need to apply for a high risk merchant account in order to be able to accept credit and debit card payments.