How to open a High Risk Merchant Account

Establishing a high risk merchant account is a specialized process that requires a solid amount of prep work, detail-oriented documentation, and a strategic approach. For this reason, there is less flexibility than for traditional merchant accounts. The application for high-risk merchant accounts will be subject to much more scrutiny from the bank and the processor because of the account's higher chargeback risk, regulatory implications, and challenges and complexities unique to your industry. The more methodically you understand your process, the better your chances for approval and favorable terms will be.

Understanding Your Risk Factors

Before you apply for a high-risk merchant account you need to know what makes your business a high-risk. Once you understand what makes your business a high-risk merchant account, if you have been terminated by other accounts, or if you have been an applicant that has had other applications denied, knowing the "why" is the first step towards moving forward. Some common reasons why your business may be considered a high-risk include:

• A chargeback ratio exceeding 1%
• Operating in a restricted industry (i.e. adult entertainment, online gaming)
• Processing a high number of transactions
• Having poor credit
• A risk assessment will help you identify potential concerns that the bank or processor may raise during the underwriting process.

Researching and Selecting Providers

To create a high risk merchant account it takes a lot of information and time to get approved. Before you can even get to the question of choosing a provider, you must first find and research specialized high-risk processors. It would be better to not just select the first one you find because there are significant differences between processors, including industry expertise, fee schedules, approval rates and customer service. It would be helpful to find a provider that has industry experience, if they understand your business practices and the expectations of the regulators this could open up extensive opportunities.

When researching providers, review all areas of comparison and don’t solely focus on price. Look at contract terms, reserves, chargeback thresholds, and the quality of support and service you can expect. Some processors will specialize in some industries while others will offer a broader high risk classification. It is best to choose providers that have a good record for industry success and have specific transparent pricing.

Get Ready with All Requested Documentation

There will be additional documentation requirements for high risk applications because it is important to show legitimacy in your business and financial stability. You should assess the documentation requested well before submitting your high risk application because we are now looking at some real documentation that could include the following: proof of licensure, articles of incorporation, financial statements for the prior two years, bank statements proving cash flow activity, tax returns, and processing history if applicable. If you are applying for a high risk merchant account, your merchant services provider may require substantial additional detail to determine your company's risk profile, or get an understanding of prior behavior with your finances.

Additional documentation could be a personal credit report (for every owner of the business), detailed business plans explaining the product or service that you offer, marketing materials, screenshots of websites, and compliance certifications specific to your industry. If everything is laid out and brutally honest then at least your high risk credit card merchant account application with Trinity Consultings should be done in no time and demonstrate professionalism to the underwriters.

Finalize the Application Process

Complete your application with your selected high risk payment processor. Make certain all information is accurate and complete, as your application will get rejected immediately if there are discrepancies. You will ultimately want to be truthful about your business model, customers, average transaction amount, and monthly volume as well.

You may be required to submit much more documentation or even go through a background check. Clearly interact with the underwriting team and respond timely to any requests they have for clarification or for further documentation. Underwriting can take anywhere from a few days to several weeks, depending on your situation and that of the underwriting teams'.

Going Through the Approval Process

It can take several days for high risk accounts to get approved. High risk merchants will be asked for additional information about their business (ex. bank statements) and may have a personal credit check done. During this time, keep and open line of communication with your processor, and be ready, and willing to answer detailed questions about your:

• Operations
• Risk Management Framework
• Fraud & Chargeback Prevention Practices

Some processors may require an additional layer of security such as a rolling reserve, where a percentage of transactions would be held for a particular period of time to cover chargebacks. Although this might restrict cash available for your business, the processor might agree to better processing terms or agreements in the future because you demonstrated commitment and responsible business practices.

Managing Your Account Successfully

Once you have been approved and have though about all of the steps necessary to set up your merchant account, now you need to think about how to keep your account in good standing. First and foremost would be focusing mainly on customer service and communication. Letting customer know general estimates on delivery dates and always telling them the payment processed, when, and how much is important. Always be responsive when questions or concerns arise. 

To keep your high risk merchant account in good standing, you need to make sure fraud prevention systems are adequate, chargeback ratios are low, and that you have made efforts to keep PCI compliant to keep your account in good standing.

In addition, you must regularly report record keeping metrics such as, chargeback ratios, refund ratios, and transaction trends. The more you can be proactive in running the account, the more you will be able to collect issues before determining that your account is terminated and you will be able to grow a business that may eventually allow you to negotiate better processing terms and rates as your risk profile declines overtime.