Merchant Accounts vs High Risk Merchant Accounts
For some specific business types, merchant accounts are often difficult to obtain because they are categorized as a "high risk businesses".
These business types include, but are not limited to:
Auctions | Travel Agencies | Pharmacuticals | Gambling | Dating | Telemarketing | Multi Level Marking (MLM) | Cell Phones| Load Modification | Debt Settlement
Most merchant account providers classify these industries a higher risk due to an excessive amount of charge backs, fraud and refunds. Because of these, even if your business does not fall victim to this, merchant accounts for these business types are generally charged higher rates.
Often, the only difference between a high risk merchant account and an ordinary merchant account is the business type. The industry has a list of business types that it considers to be riskier to work with than say... a small retail store where every card is swiped by a live person.
Any time a card is collected over the phone, internet or by mail, it is considered to be riskier simply because it is harder to prove that the person ordering from you is the actual cardholder. Additionally, some specific business types (such as travel, seminars, bail bonds, infomercials, etc) are riskier because an excessive number of cardholder claim they did not get what they paid for and charge the transaction back.
Banks are generally the most difficult place to obtain a high risk merchant account. Additionally, even if they approve the account, their fees and rates tend to be excessive. Third party merchant account providers can usually provide high risk merchant accounts for a variety of reasons, be it in-house risk and underwriting management or the ability to spread an account among various banks.
Additionally, because third party account providers are in strong competition with one another, rates tend to be lower than a bank offering, but still higher than a standard account to offset the risk involved. Some providers charge an application fee, though many do not.
There are two types of fees that make up the majority of the cost. The first is the transaction fee, sometimes called the authorization fee. This is a flat per transaction fee that can run anywhere from $.30 to $.75 depending on a number of factors. The second important fee is the discount rate.
if The discount rate is a percentage of the amount of the transaction that can vary from 3% and up depending on business type and business financials. Some other fees to keep an eye out for are monthly maintenance fees, statement fees, chargeback fees and monthly minimums.
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