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A Brief Explanation About High Risk Merchant Account

High risk merchant account is a payment processing agreement customized to fit businesses which are considered to be high risk or operating in an industry that’s considered as such. Most of the time, these merchants need to pay higher fees for merchant services which can then add to their business expenses that affects their profitability and ROI. This is felt mostly by companies and businesses that operations were reclassified in high risk industries and were not yet ready to deal with the costs involved in operating as a high risk merchant.

But don’t worry because there are also many different companies that have specialization with high risk merchants by means of offering clients with competitive rates, lower reserve rates and/or faster payouts. All of these are designed carefully to increase people’s interests.

Businesses in different industries are considered high risk primarily because of the nature of business they’re in, the methods that they apply and a number of other aspects. As a quick example, any adult businesses are high risk operation as are collections agencies, offline and online business, legal online and offline gambling, bail bonds, travel agencies and even car rentals. Since working with and processing payments for these said companies carry greater risks for financial institutions and banks, they’re obliged to sign up for high risk merchant account. So in comparison to the typical merchant accounts, this carries different fee schedule.

Merchant account is simply a bank account but this functions more of a line of credit that has enabled an individual or the merchant or a company to acquire payments from debit and credit cards used by their customers. The bank that’s providing the merchant account is the acquiring bank while banks that are issuing the card used by consumers are simply the issuing bank. Another essential component of processing cycle is gateway. This handles the transfer of transaction information from the customer to the merchant.

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Acquiring bank can offer payment processing contract or the merchant may need to open high risk merchant account w/a high risk payment processor. This payment processor will be collecting the funds and reroute them to the account of the acquiring bank.

With regards to high risk merchant account, there could be more risks involved in the integrity of the funds and at the same time, the possibility that the bank is financially responsible for any problems that arise. Thus, high risk merchant accounts normally put in place additional security measures like delayed merchant settlements wherein the bank will hold the fund for a longer period of time to offset risks of fraud transactions.

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