The term ‘high risk’ is used in the financial industry to refer to a high probability of loss and a slight chance for gains. These accounts relate to several industries and are labeled high-risk due to the associated activities’ more complex and controversial nature.
It makes it very difficult for these businesses to conduct their activities as most of the banks and other online money transfer agencies are reluctant to provide payment processing services for the company. The majority of such businesses have to get services from merchant accounts, which allow high-risk business operations and even offer adult payment processor services for the users. The following article will explain the term “high-risk merchant account,” what it is and how it works.
Characteristics of a high-risk account
Businesses with a high risk of fraudulent activities associated with them are deemed high-risk as the payment processing providers will be reluctant to offer the services with a high degree of expected fraud. Additionally, banks and other payment processing services state a business as high-risk if they have a high tendency of chargebacks and refunds. For instance, a company selling adult products is considered high risk due to the controversial nature of its businesses.
Reasons for being stated as high risk
There are several reasons why an account can be considered high risk. It will depend on the service providers and their process of verifying how an account is considered high-risk. Some common ways merchants analyze if a business is a high risk is by checking their volume of transactions. The companies that have to make a lot of high transactions in a month will be deemed high risk.
If your business involves payments and truncations from international clients, there is a high chance the account will be stated as high risk. Additionally, many accounts are at high risk due to the nature of their operations. A business associated with the adult industry, travel agencies, electronic stores, online dating, and gambling is some common examples of high-risk accounts.
Having established the nature of a high-risk account, the following are some of the implications that the users will face in their businesses.
A high-risk account will have to bear higher fees on a transaction than a standard account. Every sale they initiate will be subjected to higher prices, exposing them to higher fixed costs than a low-risk account. Some account providers also keep a percentage of the income of a high-risk account for a certain period to ensure they are not associated with fraudulent activities. Additionally, the accounts will also be charged a higher percentage fee from chargebacks by the service providers. All these aspects increase the costs of running a high-risk account significantly.
The matters explained in the article above will help you understand the nature of a high-risk account, why they are known as high risk, and some of the issues they have to face daily to operate effectively in their industry.