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The Ultimate Guide to Accounts

A Guide to High Risk Merchant Accounts

Before accepting credit card payments, a business must obtain a merchant account with an acquiring bank, or a financial institution that processes credit card or debit card payments on behalf of a merchant. The two categories of merchant accounts are low risk and high risk accounts. Most credit card processors would prefer to handle low risk merchants because it is safer to deal with than high risk merchants which only a few processors are willing to accommodate. When we speak of high risk, it means that you expect a higher than average numbers of chargebacks. Chargeback is actually protection for the customer that is provided by the issuing bank. So, when the card holder files a complaint on fraudulent transactions using their credit card, the bank investigates the complaint. When upon investigation it will be proven that the transaction is indeed fraudulent, the bank will refund the original value to the cardholder. So from a merchant’s perspective, if you cannot prove that the transaction is legitimate, the bank will take back the value of the transactions from your account along with an additional fee. This chargeback fee will range from zero to a hundred dollars depending on the merchants bank sponsoring your account. But if the cardholder’s complaint is not valid then no refund will be issues but there will be processing fees charged.

Chargebacks are really dependent on several factors including the kind of products or services that the merchant is offering. It could come as a superficial factor based on the business’s industry or clientele, while others are directly related to the merchant’s business practices.

A merchant is low risk if it only accepts one currency and they only sell low risk items like books, office supplies, home goods or clothing. This includes that your chargebacks and returns are kept to a minimum. High risk products and services includes casinos, gambling, or gaming, VoIP or telemarketing, Pharmaceuticals or drug stores, all products or services related to adult content or activities, travel accommodation, attorneys, dating services, magazine subscription and e-cigarettes among other things. The list above, however, is not considered high risk by all processors because they are deal with on a case to case basis, and you can also find businesses which are not in the list which are considered high risk by some processors.

Traditional low risk merchant accounts can quickly be terminated if chargeback levels become excessive. When this happens they can apply for a high risk merchant account but it comes with higher fees.

Whichever category your present business is in, it is important to remember that chargebacks affect much more than just the category of your merchant account. Whether high risk or low risk you should avoid fraudulent transactions which will hurt your business.

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