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TABLE OF CONTENTS
- An Overview of High-Risk Merchant Account Fees
- Why Are Processing Costs Different for High-Risk Merchant Accounts?
- Factors that Classify Your Business as High-Risk for a Merchant Account
- The Types of Risk Associated with High-Risk Merchants
- 4 Fees That Fluctuate With Your Risk Level
- 4 Fees That Stay Static Regardless of Your Risk Level
- Why Choose PaymentCloud?
High-risk merchant account fees are typically more costly than traditional merchant account fees, partly because they offset the considerable financial costs associated with high-risk businesses. In plain terms, the merchant in this equation is spending money to make money.
A merchant account is a specialty bank account for business owners through which their payments are channeled. It is, without question, one of the most essential payment processing elements. Without a merchant account, a business cannot accept credit cards, which are the most prevalent payment method for consumers.
Of course, not all merchant accounts are created equal. Because of this disparity, high-risk businesses must obtain high-risk merchant accounts to acquire the processing support necessary for their individual needs.
Below, we’ll explore high-risk accounts and their associated fees. Best of all, we’ll unpack how you can access the lowest possible fees by partnering with a merchant services provider specializing in high-risk business support!
Average High-Risk Merchant Account Rates
Generally, high-risk business owners can expect their credit card processing rates to be 0.5% to 1% higher than low-risk processing rates. These rates range from 3.49% to 3.95% per transaction on average, plus a $0.25 transaction fee. Monthly fees typically range from $10 to $50. Merchants are encouraged to get a grasp on these numbers, as they help paint an accurate portrait of the pros and cons of partnering with a high-risk processor.
| Processing rates for high-risk businesses: | 0.5% – 1% higher than the low-risk alternative |
| Average rate: | 3.49% – 3.95% per transaction |
| Monthly fees: | $10 – $50 |
An Overview of High-Risk Merchant Account Fees
High-risk merchant accounts are designed for businesses more likely to experience chargebacks, fraud, or other payment processing pitfalls. These issues can make securing a traditional merchant account challenging. To compensate for the increased exposure to these obstacles, fees for a high-risk merchant account are often more expensive than those for a standard merchant account.
The fees associated with a high-risk merchant account vary depending on several factors, including the specific industry, transaction volume, and assessed risk level. High-risk accounts may also be subject to fees for chargeback protection, PCI compliance, and additional security measures. Generally speaking, these fees differ between respective payment processors.
Why Are Processing Costs Different for High-Risk Merchant Accounts?
Merchant account providers face greater potential liability from high-risk businesses, and associated merchant account fees reflect that risk. For example, high-risk companies may have a higher rate of chargebacks, which can be costly for the merchant account provider.
Any small business owner knows that excess chargebacks can damage your professional reputation. As such, merchants should mitigate these potential roadblocks with as much care and scrutiny as possible.
The processor charges more for its services to offset this chance of risk. Additionally, the processor may require more stringent security measures, such as a rolling reserve, to protect itself from potential losses from high-risk transactions. These factors contribute to the sometimes significantly higher fees associated with high-risk merchant accounts.
Factors that Classify Your Business as High-Risk for a Merchant Account
Specific factors that can earn your business a high-risk classification are so commonplace that a merchant may not even realize their operation is in this category until they attempt to obtain a merchant account. Such factors include:
- Operations falling within specific industries
- Large transaction volume
- Higher than average ticket size
- Likelihood of a high chargeback ratio
- Considerable possibility for credit card fraud
- Limited business operating history
- Low credit score (personal or business)
The Types of Risk Associated with High-Risk Merchants
High-risk merchant account providers are encouraged to consider two primary forms of risk: chargebacks and reputational jeopardy.
Risk of Chargebacks
High-risk merchants are more likely to experience chargebacks when a customer formally disputes a credit card charge. The process can be costly and time-consuming for the parties that manage these chargebacks, such as the processor, acquiring bank, and card network. As a result, these parties aim to avoid servicing businesses that are likely to incur chargebacks, as the process puts a strain on their resources.
Bank Reputational Risk
High-risk merchants pose a potential reputational risk to acquiring banks. In other words, these merchants may be associated with controversial industries that are subject to complex regulations. One example would be the CBD industry. Even though CBD does not have the same THC levels as marijuana, some financial institutions still consider it a red flag. The reputational risk of servicing high-risk merchants means that obtaining a standard merchant account becomes more complicated than it might otherwise be.
4 Fees That Fluctuate With Your Risk Level
1. Chargeback Fees
More often than not, chargebacks are costly. They typically result in the merchant losing the sale and incurring a fee from the processor. Chargeback fees vary depending on the business’s risk level. Naturally, higher-risk operations run the risk of attracting higher chargeback fees.
2. Transaction Rates
The transaction rate is the percentage of each sale that goes to the merchant account provider as a service fee. The details of this rate vary depending on the business’s risk level. Once again, higher-risk enterprises are more likely to incur heightened rates.
3. Monthly Fees
Indeed, many merchant account providers charge a monthly fee for their services. In this equation, different fees correlate to corresponding levels of professional risk. Greater business risk almost always results in steeper fees.
4. Reserve Accounts
A merchant account reserve is an account in which the merchant account provider withholds a percentage of each sale in a designated reserve. This reserve safeguards the merchant from the heightened financial exposure that comes with assisting high-risk enterprises.
4 Fees That Stay Static Regardless of Your Risk Level
1. Refund Fees
If a customer requests a refund, the merchant in the equation may be subject to an additional fee from their merchant account provider. Merchants should consider factoring this cost into their pricing strategy to ensure they can provide refunds without falling into the red. Additionally, it’s beneficial for merchants to have policies regarding refunds so customers know what to expect when requesting one.
2. PCI Compliance Fees
PCI compliance is a requirement for every merchant who wishes to accept credit card payments. In this case, PCI refers to the data security standard established by the Payment Card Industry: an extensive set of guidelines designed to protect consumer’s financial information and ensure secure transactions. Regarding costs, merchants may pay a PCI non-compliance fee if they fail to meet official PCI standards. Additionally, some processors charge a PCI compliance fee to reassign the costs of maintaining compliance to the merchant.
3. Security Fees
Merchant account providers often offer security solutions and chargeback protection as supplementary services. However, these usually come at an extra cost. The expense of providing these services is generally the same for all businesses, regardless of risk level.
4. Termination Fees
Merchant account providers may charge an early termination fee to cover the cost of discontinuing the contract and compensate the merchant account provider for any potential losses incurred due to the early termination of the merchant agreement. Terminating fees are relatively static since terminating a merchant account costs about the same for all businesses, regardless of size, industry, or risk level.
Why Choose PaymentCloud?
High-risk businesses are often synonymous with above-average processing fees in the payments industry. As a leading merchant services provider specializing in helping high-risk businesses, PaymentCloud believes that high-risk merchants deserve the same opportunities as any other business owner.
Processing rates absolutely impact a business’s probability of success. Our team of dedicated and experienced account managers is committed to helping merchants obtain a high-risk merchant account at the best available rate with no startup fee. Don’t waste time partnering with a provider that sees your high-risk business as a headache—partner with one that views high risk as a high reward!
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