Everything You Should Know About High-Risk Merchant Accounts

These days, almost all of us use online sites to purchase goods and services. When you place an order and make the payment, it seems so straightforward that you may not think twice about it. All ecommerce sites are so user-friendly that we barely pay attention to what is happening behind the payment gateways. It is a fact that a lot goes on. There is an active interaction and agreement between the merchant who makes the sale and the payment gateway that handles your payment. The payment gateway is the one that moves your money from your account to the bank account of the merchant. Any money transaction carries some inherent risk. The degree of risk a gateway takes determines whether it’s a low-risk or a high-risk merchant. Let us go deeper into the subject and gain full knowledge of high-risk merchant accounts and high-risk payment gateways.

Did you know? All cash deposits and withdrawals of ₹10 Lakhs or more must be reported fortnightly by banks to the RBI, along with any suspicious transactions.

What is a High-Risk Merchant Account?

Banks and payment gateways see a high-risk merchant account as an account that is riskier to handle. This is because of excessive refunds, cancellations, chargebacks, and even online frauds in transactions that go through high-risk payment gateways. Because of this fear, businesses that fall under this category have difficulty getting firm, long-term tie-ups with payment gateways. They also end up paying higher processing charges. Sometimes, they may also be asked to deposit a Rolling Reserve. Sometimes, a business has no choice but to register as a high-risk merchant.

Reasons a Merchant Account May Be Considered High Risk

There could be a variety of reasons why a merchant account is classified as a high-risk account. Following are some reasons:

1. It could be due to a bad track record in past transactions. A high frequency of failed transactions is one.
2. Too many cancellations and refund claims.
3. Payment gateways dislike chargebacks. If this happens often, the account will be considered a high-risk merchant account.

However, the classification is almost generic when it comes to the identification of high-risk businesses based on the nature of the business or industry. Let us now look at what are considered high-risk businesses based on their industries.

Also Read: IMPS (Immediate Payment Service)- What is IMPS Transfer, IMPS Payment, Timings & Limit

Types of Businesses Considered High Risk

The list is quite long but important to know. Hence, it is reproduced below.

This is neither a full list nor is applicable at all times. Payment gateways and participating banks often use their own yardsticks to decide who is a high-risk merchant.

Also Read: Real-Time Gross Settlement (RTGS)- Definition & Importance

Comparison of Characteristics Between Low-Risk and High-Risk Merchant Accounts

As mentioned earlier, there are no strict rules to demarcate low-risk and high-risk merchants. The following are some generally observed factors delineating between the two.

Low-risk merchants generally display the following characteristics:

• A low number of transactions in a given period
• Low value of individual transactions
• Very low incidence of cancellations, refunds, or chargebacks seen
• Industries covered are traditional and stable
• They operate within the country and are not involved in international transactions
• They operate only in Indian Rupee and not foreign currencies
• The returns in this category are moderate

High-risk merchants, on the contrary, show characteristics like

• A very high number of transactions in a given period
• Individual transactions reach high values
• Industries catered to are known to be high-risk segments
• Transactions are cross border and multi-currency
• Even transactions accepted from countries known for payment failures, scams and frauds
• Have an unfavourable credit rating

Advantages of High-Risk Merchant Account

Most of what is written may appear to show high-risk merchant accounts in a bad light. But that is not true. There is certainly some silver lining too. As we saw before, the classification is mostly based on the industry they serve. And a look at the list shows that many of them are needed in everyday life. There are three main advantages to having a high-risk merchant account.

1. You get a wide reach of markets across the globe. High-speed internet, digital tools, and the explosion in social media and ecommerce open up a growth opportunity that a limited domestic player can never dream of.
2. A high-risk merchant account enables you to sell in riskier markets. This facility is unavailable to those who want to play safe and opt for low-risk merchant accounts. With experience learned through a few risky transactions, the high-risk merchant account holder will grow wiser and discern between different markets to maximise sales and profits.
3. There is one more somewhat hidden advantage. Though considered low risk, there can be payment failures, refunds and cancellations even in such markets. In the event of repeated failures, a payment gateway can terminate the merchant’s so-called “low risk account”. This will be a traumatic experience for the merchant as all operations will suddenly halt. Can a merchant expect anything worst than his pipeline getting choked? In the case of those having a high-risk merchant account, this does not generally happen. Because of the higher fees charged, high-risk payment gateways allow some leeway and don’t snap the account as ruthlessly as low-risk merchant accounts.

Also Read: NEFT: Meaning, Timings, Transfer Procedure, and Benefits

Tie-up of a High-Risk Merchant Account with a High-Risk Payment Gateway

Earlier, it was quite challenging for a high-risk merchant account holder to find a willing payment gateway partner to process their payments. But with better technology offering greater transaction security, more and more gateways are getting into the high-risk payment gateway zone. So, today, with increasing competition among gateway service providers, high-risk merchants have several options. Now, you should know what factors influence your preferences in choosing a particular high-risk payment gateway. Here a a few thoughts on that:

1. The most important feature is technology. You should go for the one that offers you the latest, powerful technology platform. Using an archaic technology will bring you a lot of headaches which you should avoid. The basic points you should look for are as follows:

(1) It should provide a smooth Application Programming Interface (API). This will enable you to take control of the set-up of the payment process. 

(2) Ease of onboarding customers. 

(3) Facility for multiple accounts. 

(4) Low to zero downtime. Hence don’t try to play safe by blindly going by a gateway’s brand image. Go deeper and understand the technology backing the offer.

2. The next important feature is “support.” This is so crucial that it renders everything else irrelevant. After all, what is the use of great technology if you have to keep watching when the system is down, and no one is available to set it right? So, study the available support infrastructure and negotiate to get special attention for your complaints.
3. The third important feature is the availability of a high degree of customisation. If the service offered is flexible and lets you customise as per your changing requirements, it will matter a lot. It should allow changes in your payment options, add, modify or remove certain options as per your choice. It should facilitate multiple payment channels and options as per your business needs. It should also be amenable to changes and modifications as and when needed.
4. The last feature is the pricing. While pricing and budgets are very important in a competitive business, this is still the last in terms of importance. Look for a balance in features and pricing, and ensure you’re not overcharged for what you’re getting.

Conclusion

If you have several offers from high-risk gateways, and all of them fully qualify for the features we discussed above, then, obviously, you will go for the lowest price and best terms. But here’s a word of caution. Look at the commercial package closely under the microscopic scanner of your mind. High-risk merchant account instant approval is also available nowadays. You can also look into those, and don’t forget to check out a gateway’s chargeback policy before the tie-up. Unearth any hidden costs on which the offer is silent. Make sure there is total transparency so that you are not later caught unawares. Never ignore the small print in the T&Cs. 

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