Technology

Guide To High Risk Merchant Accounts

4 Mins read

With a lot of transactions now being done online. it’s become imperative for businesses to get a proper payment processing system. But some businesses have a harder time getting approved for a merchant account because they’re considered as high risk. 

If you’re one of these businesses, here’s everything you need to know about high-risk merchant accounts:

Low-risk versus high-risk merchants

Before applying for a merchant account, it’s important to know the difference between a low-risk and high-risk merchant account first. Although payment processors have different guidelines in determining these categories, here are some of their most common differences:

  • A low-risk merchant is typically a smaller business with less than $20,000 in monthly sales volume, while a high-risk merchant processes more than $20,000 in sales every month. 
  • A low-risk merchant operates in a low-risk industry like household products or clothing. A high-risk merchant, on the other hand, belongs to an industry with high levels of fraud. 
  • A low-risk merchant has an average credit card transaction of less than $500 while a high-risk merchant processes more than that.
  • A low-risk merchant has zero to low chargeback ratios while a high-risk merchant has a history of bad credit and excessive chargebacks.

The most common high-risk merchants

A payment processor considers several factors in categorizing a business as a high-risk merchant. The biggest factor that determines the risk of a business is the high charge back ratio incurred from fraudulent transactions and refunds. 

Most businesses that fall into high-risk merchants belong to industries that collect advanced payments for their products or services like subscriptions or gambling. 

These businesses are also considered high-risk by most payment processors:

  1. Herbal and dietary supplement retailers
  2. Online prescription services
  3. Tobacco/e-cigarette
  4. Telemarketers
  5. Debt collection
  6. Liquor
  7. IT services 
  8. Subscription services 
  9. Online auctions

Most payment processors also look at a business’ age and its credit rating. Newer businesses are flagged as high risk merchant accounts even if they have good credit rating because they’re not established yet and might not have the steady income that processors need. 

But a startup can definitely move from being high-risk to low-risk with consistent income, good credibility and excellent credit ratings.

A bad credit rating is the biggest red flag for any payment processor because it signifies that a business is not trustworthy and a little disorganized with its finances. 

It is why when you apply for a merchant account and you have bad credit, it’s very important to have someone in your company who has good credit to be part of your application. 

The benefits of having a high-risk merchant account

Although it’s harder to get approved for a merchant account if you’re flagged as a high-risk business, having a good payment processing system is still necessary for you to be able to accept credit and debit card payments. This gives you the opportunity to earn more and increase your market reach. 

So if you’re ready to apply for a high-risk merchant account, don’t hesitate to seek professional help in making sure that you comply with all the documents needed and get a better chance at getting an approval. 

Everything You Need to Know About ACH Transactions

You might not know it, but you’re using the ACH payment system in both your personal and business transactions. ACH stands for Automated Clearing House and it is a system similar to the “pay bills” feature in your online account. 

If you’re using electronic deposit to pay your employees or suppliers, then you’re using the ACH payment system.

ACH transactions are governed by Nacha, which makes rules on how to transact ACH transfers. Since ACH transfer forms part of the foundation of money transfers between American banks. It is trying to convince the Federal Reserve to make changes to its daily operations so that ACH transfers can be done easily and swiftly across banks. 

But what exactly is an ACH transaction?

The process of ACH transfers

An ACH transaction happens when transactions are sent to an ACH network that connects American banks to the U.S. Federal Reserve Bank where all money changes between banks occur. 

Currently, these transfers are done twice a day during regular business days. 

In the case of a transfer between an American bank and foreign bank, the transaction is sent to different network called the SWIFT network where most of these transactions are passed through. 

Although these transactions happen between American and foreign banks, they are still governed by the rules set up by Nacha, which is why they’re still labeled as ACH transfers.

ACH credit and ACH debit

There are two types of ACH transfers from the point of view of users: ACH Credit and ACH Debit.

ACH Credit

Also known as “push” payments referring to the money being pushed out of the owner’s account, ACH credit means that the account owner or sender needs to authorize each payment before the money is moved out of his account. 

In this process, the receiver will give his bank account details to the sender, which he then sends along to his own bank with the specified amount and sometimes date for the transfer. After this is settled on the central bank, the money will then appear on the receiver’s account.

ACH Debit

Also known as “pulled” payments, an ACH debit transaction is typically used for recurring bills like subscriptions, utility payments and other transactions of the same kind. 

In this process, the account holder or payor will send the information to the company where the bill is due. This includes his account number, routine number and the authorization for payment on a specified date each month. 

The bank then sends this information through the Federal Reserve and into the payor’s bank, which then makes sure that there are sufficient funds for the payment before the money is released.

ACH transactions are processed in batches to ensure efficiency. Today, the Federal Reserve does these transactions twice every day, but Nacha is aiming to make it three times a day by 2021 to increase the efficiency of the entire system. If you’re in a hurry, however, you can have your transfer completed within 24 hours but with an extra fee. 

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