In the era of online startups and e-commerce growth, it’s critical to have the means to accept credit cards online. Customers flow to shopping carts then checkout pages, and purchase items with a click. If you sell goods or services in a high-risk industry, you need to make sure your merchant account is equipped.
Customers who make purchases through your site want to have options. Most pay quickly with credit card information retained by cache and cookies. Others choose a more secure approach. ACH processing is a straightforward direct debit transaction. It’s also known as an e-check.
If you want to reduce cart abandonment and have sustainable merchant account solutions for your business, look into high-risk merchant accounts. This resource allows you to sell certain products that companies like PayPal, Square, and Stripe don’t allow.
Reasons You’re Considered A High-Risk Merchant
You may be wondering “What is a high-risk merchant account”? Well, even some of the best merchant account providers aren’t able to handle some of the risk factors associated with certain businesses. These include:
- Chargebacks Rates – Chargebacks occur when a customer disputes a transaction and asks for a refund through their bank. Each time this occurs, you incur a penalty. Merchant accounts have a designated allowance for chargebacks. The rate ranges per account but is often between 0.5% – 2%.
- Fraud – Fraud can happen in any industry, however, some industries are more susceptible to certain types of fraud. Friendly fraud, for example, is when a customer tries to get a refund for an item, but they keep it. If this happens often, it can be a substantial cost to merchants who lose money from a sale and production costs.
- Regulatory Conflicts – In industries like CBD, Tobacco, Firearms, and more, there are legal bodies that oversee and regulate goods sold. Additionally, different states and cities have separate laws. With such variability in the legal environment, most aggregate payment processors will not allow your company to operate on their platform.
- High Ticket Sales – If you sell high-value items such as jewelry, precious metals, or other numismatic items, you may qualify as a high-ticket seller. This is considered high-risk because each transaction is a major part of your revenue, and if there is a return or chargeback on it, it will be detrimental to your revenue.
- International Businesses Running Offshore Business – Outside of the USA and Canada, there is a world of international merchant accounts. Each country and contingent has a plethora of banks and legal frameworks. Finding processing for monetary denominations across the world can be difficult if your business operates offshore. Therefore, international merchant accounts require high-risk solutions to evaluate the conditions surrounding your account.
- Personal Credit – Your personal credit could affect the integrity of your merchant account application. Banks are more reluctant to provide business accounts to individuals who have low credit scores, or a history of struggling businesses. As a business owner, you represent the financial structure and expectations of your company, so be sure to have a stable financial record to acquire the payment processing account you need.
- Processing History – New businesses, especially those in regulated verticals such as CBD, often require processing history to qualify for an established merchant account.
If you’re a startup and have fewer than three months of transactions to show, you may be best qualified for an ACH account. This allows you to accept payment directly from the customer accounts. Instead of entering credit card information, a customer enters their account number to complete their purchase.
High-Risk Merchant Account Industries
It’s important to know the different types of businesses that are best suited for high-risk merchant accounts. Although you may be instantly approved by major companies, there’s a chance they will drop your account later on.
Read their Terms and Conditions to see if your industry is permitted. If you operate in one of the following verticals, you’re more likely to require a payment processing solution from a non-mainstream provider.
Payment Processing Fees
It’s no surprise, businesses that require unique solutions have to pay premiums on the benefits they receive. In high-risk credit card processing, the same is true.
Nonetheless, your company may qualify for lower fees based on your sales volume and processing history. Therefore, there is no direct formula for how much a business pays for its merchant account. It’s dependent on several variables and conditions which change per business.
In general, the fees for the average high-risk merchant account range from 0.5% – 4.0 %. Compare this to aggregate processors like Stripe who charges 2.9% and $0.30 per transaction. We’ll outline various situations that can reduce your fees and save you money on your payment processing.
Additional fees may include a gateway fee or a PCI compliance fee. These usually range from $30 – $60 per month.
Keep in mind high-risk merchant accounts aren’t your standard bank account. Because they have custom limitations, processing companies charge premiums on accounts to hedge the risk involved to them. Some fees you can expect are as follows:
- Setup Fees
- Increased Account Fees
- Early Termination Fees
- Application Fees
- Transaction Fees
- Chargeback fees
- Processing Fees – Greater than “instant approval” merchant account companies
High-Risk Merchant Account Fees Overview
The fees for operating a merchant account can be difficult to account for, but the more you know about the specific ranges, the better off you’ll be when it comes to forecasting costs and comparing high-risk providers.
In summary, standard fees start around 3%. The fixed monthly fees will range between $45-$85/month depending on the industry. The per-transaction fees are between $0.30-$0.45. The exact fee is figured based on your type of product, the ticket-value, and the number of transactions you make each month.
You may also incur a monthly minimum processing fee. This is charged on accounts that process fewer sales volume than is required to meet their baseline fees per account. Consider it an account operating fee to keep your account running if you’re processing minimal volume. Depending on the bank it ranges from $50-$150 per month.
A rolling reserve is a bank’s way to protect itself against chargebacks, and other situations that may result in non-payment. To start from the basics, credit card payments are a way of a bank lending money to a customer who will pay a debt back later. Similarly, merchants also issue credit for a short time when you pay with a credit card.
If you’ve ever seen the word “processing” on your credit card statement, it means the transaction is currently waiting on the merchant to complete the final payment step. Once it’s finalized, however, there is another possibility that banks mitigate with a rolling reserve – chargebacks.
Rolling Reserves and Chargebacks
In some high-risk industries, chargebacks are a concern, and rolling reserves are put in place to ensure banks still receive payment even if a customer is unhappy with a merchant. The rolling reserve amount changes per business, but for each merchant, it means there is a portion of their revenue that must remain untouched.
The benefit of a rolling reserve to a merchant is that having one decreases the likelihood that their account will be shut down. It’s a mandatory and beneficial resource that keeps both banks and businesses operating. In contrast, debit transactions are exempt from rolling reserves; they are taken directly from a debit account and processed immediately.
CBD Merchant Account Fee
CBD merchant accounts are in an interesting place when it comes to banking restrictions. For the banks that are willing to open a CBD merchant account, they tend to have stricter rules and higher costs. Nonetheless, with a booming CBD industry, many online merchants are happy to pay the premium to have the ability to accept credit cards on their site.
For CBD payment processing, the bank fees can be up to 5.5% but are often lower if you have a well-established business.
Moreover, the fixed monthly fees range between $40-$70 per month. The per-transaction fees approximate the industry standard and are around $0.35. Lastly, the monthly minimum processing fee is around $150 monthly.
ACH Processing Fees
ACH or e-check merchant accounts provide the best way for startups to enter the world of online payment processing. Not only do they have faster approvals and fewer restrictions, but they also offer far lower fees than a credit card processing account.
With ACH, a merchant doesn’t have to wait days for credit cards to process. Moreover, this direct debit approach is more secure. Because of the increased security, ACH provides, the fees are considerably more beneficial to the merchant.
ACH only costs around 2% or $0.25 per transaction. Additionally, it’s only $50/month with the initial setup fee (after approval) $150 – $250. The good news is, it’s completely refundable after six months with the processor.
What’s the Process for Opening an Account?
To open an account for your high-risk business, you’ll need to contact a merchant provider who will guide you through the process.
- Merchant Application – The merchant application will either be on their website or you’ll have to contact the company to obtain one. This is a detailed document that collects all of the most vital information. The bank creates your file with the information you provide. The applications at top high-risk merchant account companies are secure and will ask for important information. From your social security number to the financial statements which showcase your company’s transaction history, the merchant application allows you to start the process quickly on your own.
- Follow-Up Call – Once you submit your application, a representative will contact you to verify any ambiguous or missing information. They’ll also verify your identity. This is to make sure you are the one applying to the account. Moreover, they want to make sure there is no third-party trying to fraudulently open a merchant account on our behalf.
- Additional Documents & Website Adjustments – Next, you should provide any additional documents such as a driver’s license and proof that your business is operating.
For companies in the CBD industry, the process is a little different. You may require the following:
- Current Utility Bill
- Proof of Domain Ownership
- State Issued Business License OR Tax Permit
- List of All Products Sold on the Website (Excel format)
- COAs (Certificates of Analysis) – For every CBD product sold online labeled with the product name as it appears on your website