How to open a High Risk Merchant Account

There is a special way to go about applying for a high risk merchant accounts, compared to a standard merchant account application, it is an entirely different ball game. High risk merchants face a unique challenge regarding payment processing services, but with proper preparation, and understanding the process, any difficult merchant model could find reliable payment processing solutions. Proper preparation, provider selection, and presenting your business in the best way while still remaining fully transparent is the key to success.

Identifying your Risk Classifications

It is important to review the reasoning behind your business being labeled as high risk before engaging in the application process. Factors that signify risk include business type, chargeback history, credit, length of business experience, payment volumes, international dealings, and regulatory boards to comply with. High risk industries generally include entertainment, online gaming, travel services, nutraceuticals, debt collection, cryptocurrency, subscription services, and businesses that have high return ratios.

You will need to come to terms with these risk factors instead of trying to diminish or conceal them. Payment processors naturally favour high risk accounts because they understand the intricacies of these concerns. Your decision to be honest about your situation create trust and accountability and professionalism, while your decision to downplay legitimate concerned risks can ruin trust and delay the process of account approval.

Researching Viable Providers

Not every payment processor will handle a merchant deemed high risk and when dealing with processors that manage high risk accounts, their capacities might differ to a considerable degree. You should conduct some research on providers supporting your high risk or industry profile. Traditional banks, in the past, do not take on high risk practices so you are better suited to identify specialized payment service providers, overseas processors, and providers that explicitly state they are high risk processors.

Review providers based upon factors including industry experience, approval rates, fees, terms of the contract, reserve requirements, and quality of customer service. Ask for at least two references that are comparable to your business and read the provider's industry reviews as well as regulatory standing to assess stability. Be aware of geographic limitations related to processing, as some processors will limit certain regions while others will require a business to be located in a particular geographic area.

Preparing documentation

Preparing documentation in a comprehensive manner has a great deal of impact on the approval decision and can speed up the processing timeline. Collect financial documentation to include six months of bank statements, past year tax returns, and profit and loss statements. Business documentation includes your articles of incorporation, business licenses, operating agreements, and professional references.

If you have processing history, it is important to share. Include statements from previous processor, chargeback reports, and transaction volume details. If you are a new business and do not have processing history, include a full business plan, market analysis, and financial forecasts demonstrating viability and planned growth.

Personal financial background for business owners typically includes credit reports, personal bank statements, and identification. Some providers may require someone to sign a personal guarantee, which will take the owner's credit worthiness into consideration when making an approval decision.

Finishing the Application Process

The application for the high risk merchant account will take a little longer to complete than the application for a standard merchant account. The application will require more detail and typically has a long questionnaire about the following: the type of business you are operating and how you operate it; the target market for your products and/or services; what products and/or services you offer; how you fulfill sales; how you provide customer service; how you accept credit card payments in payments or collections; how you handle returns; and any risk management policies and procedures.

Be as detailed as you can on the application and answers all questions.

When explaining the products or services that your company offers, make sure you include descriptions of pricing, delivery, return, and promotion of the products and/or services. Provide a description of the type of demographic your target market includes, how you will market through what channels, and where you perceive it will compete within the market. If there are any unusual aspects of your business model that may raise questions, describe those issues as well.

When providing compliance related information, provide as much relevant information as possible that shows compliance with all aspects of the applicable laws and regulations, any laws protecting payment card transaction data, and consumer protection laws and regulations. Provide any information about the employee training programs, quality control procedures, and how customers can resolve disputes regarding purchasing your products or services.

Managing Financial Requirements

High risk accounts usually require financial commitments beyond standard processing fees. Most providers that use 'rolling reserves' hold anywhere from 5-20% of processing volume for defined periods to cover potential chargebacks or refunds. Some providers may require deposits or upfront fees, which can be anywhere from the hundreds to the thousands of dollars.

Thoroughly review provider rates and costs, including transaction fees, monthly fees, chargeback assessed fees, and any cancellation or early termination fees, to arrive at total transaction costs. Make sure you understand reserve release schedules and everything about how reserves adjusted based on processing activity and performance. Adding reserves and any other required holdbacks to the budget will assist you cash flow by avoiding disruptions to processing in the approval and onboarding processes.

Navigating the Underwriting Process

High risk underwriting requires greater amounts of diligence and scrutiny to that of an average application. Underwriters may request additional documentation, conduct phone interviews, and some business types may even require in-person site visits. As a general principle, the timeliness of your response to any underwriter request will impact the ultimate approval timelines, so always do your best to answer calls or messages as fast as you can!

Expect to answer questions about the way your business operates, risks specific to your business, and to provide any additional documentation that the underwriter requests. Some providers like Trinity Consultings will even have a 'deep underwriting' and pre-approval process, which will allow an underwriter to pre-arrange your application onto a path of final underwriting while confirming that minimal, if not none, of your major risks are unsolvable.

Setting Realistic Expectations

As a general rule, the acceptance ratio when compared to standard merchant accounts is less than stellar with high risk accounts and overall, merchants can expect to wait a longer period for approval. Approval can take a few days up to a few weeks or longer depending on the complexity, and established timeline policies, of the merchant's business and the practices of the account provider. It is best practice to have backup options prepared in case prolonged delays or rejection of your first application causes interruptions to your business.

Generally, processing fees will be up to 3* times higher than standard rates. Pricing and profitability calculations should take these higher costs into consideration. Terms of a high risk accounts could include longer term contracts, larger early termination fees, and additional requirements to remain in good standing.

Best Practices Post Approval

Once an account has been approved, the account holder should take action to minimize risk and maintain accounts in good standing. The most basic of actions should include ongoing monitoring of chargeback ratio and transaction size. Maintaining a good chin with your processor is important - be clear and transparent and if you see an action that is not compliant - explain to your processor the source of non- compliance and how your are compliant - compliance should not be hiding the truth from the provider. Other actions to help maintain your account in good standing is to build a good processing history with your initial provider; not compliantly should mean a show of goodwill, taking action to rectify or reduce future issues while trying to preserve your' positive history so your provider (1) retains your business (2) enables you to provide future processing histories and feed future negotiations for your business - since businesses mature each day as do their risk appetites.

In short, being successful to open a high risk merchant account is all about being prepared, setting reasonable expectations, then presenting your case as a professionals.