What is a Merchant Account and Why Do You Need One?
Is it getting difficult for you while applying and getting approval for merchant services? Well, things can be confusing due to the complexity of concepts and other factors involved. But don't worry because this article is right here to help you! First of all, some people might be wondering why a merchant account in a high-risk business category is essential. The answer is simple because it allows a company to accept payment transactions through credit/debit cards. When it comes to a successful business, it is an important component in today’s digital and cashless world. However, the application and approval process of merchant account is not easy, especially when it comes to businesses that are considered as high risk. It requires a company to fulfill several strict requirements for a merchant account. This article is all about merchant services account for high-risk businesses. Keep reading till the end to find out what merchant accounts are, why do you need one, and what are its benefits?
What is the Meaning of Merchant Account? In simple words, merchant account means a unique bank account opened by a business owner under a payment processing company. The primary purpose of this account is to clear customer transactions. After that, the funds are transferred to the owner's business account. All the transactions at a grocery store, mobile terminals, E-commerce platforms, etc., are processed and fulfilled by merchant account providers.
Why Do You Need a Merchant Account? Do you know about aggregate payment processors like PayPal, Stripe, and others? These companies are best known for aggregating the transactions of thousands of individuals and businesses. The processing is done through the company's merchant account.
Aggregate payment processors may be convenient. But, in case of any irregularities, they cut off the connections and terminate the proceedings. It happens because they want to cut off ties with your business instead of figuring out a solution. That's why having a merchant account is essential. A merchant account makes sure that there are no processing interruptions and risks to your business.
How Does Processing of Credit Card Payments Work? As soon as the customer enters the credit card information, the data transmits through a secure gateway of payment. A direct connection is established with the payment processing company. The data of the cardholder helps in determining if he/she has funds available for the transaction. After collecting this report, the payment processing company transmits it to the company of the credit card. Further, a network of data is established. The funds from customer’s account are deducted and then deposited into the checking account. During this process, if anything goes wrong, the payment processing company or person is held responsible for the transaction money involved. That’s why proper documentations are required before starting payment processing.
Why Merchant Accounts are called High-Risk? Every time payment processors fulfill a transaction, they take a significant risk. Due to this reason, payment processors want full protection against fraud. Also, they want to ensure minimum loss during bad transactions. That’s why, to get insulation against risk, they categorize certain businesses in the “high risk” category. These high-risk businesses are more prone to fraudulent transactions, chargebacks, and other problems. For processing companies, high-risk businesses create financial liabilities, which they want to avoid at any cost. Some traits that play a primary role in labeling high-risk businesses are: ● ● ● ● ●
The financial history of the business owner The financial history of business Type of business industry Reputation of business competitors The services or products that the business offers
Why is Merchant Account Essential if a Business is Under HighRisk Category? Here’s why you require a merchant accounts: ● ● ● ●
Your previous merchant account was closed previously. Your business has been turned down by financial institutions for merchant account because of past bankruptcy or fraud. Your business is undergoing frequent customer complaints, returns, and chargebacks. Your business has a low credit score.
Here’s why industries requires merchant accounts: ● ● ●
Their services or products are partially legal or fully illegal. The services or products offered are related to adult industry. Due to this reason, payment processors are not getting involved in the transactions. The products offered come with a likelihood of consumer fraud or dissatisfaction. Common examples include collectibles, tickets, or gaming.
Which Industries Have High Chargeback Risks? Throughout history, some industries have repeatedly proven to be more prone to payment risks and chargebacks. That’s why they are universally considered high-risk. Some of them include: ● ● ● ● ● ● ●
Gaming or Casino Industry Calling Cards and Telemarketing Industry Pharmaceutical Industry Dating Services and Adult Entertainment Industry Accommodations and Travel Industry Subscription Services Credit Repair Services
What are the Benefits of a Merchant Account under High-Risk Business Category? Merchant accounts have benefits of their own. Here are a few of them: ●
Minor Difficulties with Chargebacks: Having a low-risk merchant account may lead to an overload of chargebacks. It can result in the termination of the account. However, this does not happen in
the case of a high-risk merchant account. The providing firm always monitors potential dangers and warn the owner of the account. High-Security Standards: High-risk merchant accounts provide you with several detection strategies to catch deceptive credit card transactions. These strict security standards protect the business, account provider, and the card’s owner from any fraud. More Market Opportunities: A high-risk merchant account allows you to create your businesses’ online sales website. Your website can serve as a digital catalog of your services or products and can help you win more potential customers. It will ultimately increase the growth and revenue of your business.