subject: Are You a High Risk Account? [print this page] Are You a High Risk Account? Are You a High Risk Account?
High risk accounts are labels which acquiring banks use to classify certain types of payment processing. A business can be categorized as a high risk account for several reasons.
The most common reason for a high risk account classification is if a business is in an industry which statistically has a greater likelihood of chargebacks and fraudulent transactions. Chargebacks represent contingent liabilities for acquiring banks because the bank is ultimately responsible for any losses which occur on a high risk account.
Contingent liabilities include fines from the card brands for high risk accounts exceeding chargeback thresholds. Additionally, if a high risk account becomes financially unable to absorb the costs of chargebacks, the acquiring bank must do so.
High Risk Account Classifications
Some high risk account categories are strictly related to the types of business. Companies can be classified as high risk merchant accounts due to the SIC or MCC code associated with their business type.
High risk account industry classifications have little to do with the particulars of of any specific business. Rather, high risk account classifications are based on general payment processing trends within particular industries.
A specific company classified as a high risk account often has no history of chargebacks or fraudulent transactions. Yet, the company is still considered a high risk account. The acquiring banks groups together all companies that operate within an industry when categorizing high risk merchant accounts instead of applying the high risk credit card merchant classification to a unique company.
Another reason for a high risk account classification includes rapid growth. .If a company is quickly increasing processing volumes, the acquiring bank has increased long-term potential liabilities. Even companies in standard risk categories can be considered a high risk account if there is a steep curve in processing volumes.
Certain business models are considered high risk accounts as well. For example, companies with recurring billing, subscriptions, future delivery, or high numbers of international sales may be considered high risk accounts.
Finding a Bank for High Risk Account
When applying for a payment processing account, it is important that a business know that it is classified in a risk merchant account category. There are fewer banks that will underwrite a high risk account than a non-high risk account.
Therefore, you must identify an acquiring bank that accepts your high risk account business type. Underwriting criteria for high risk account acceptance varies by bank. Some banks accept certain types of high risk merchant accounts but not other types.
Identifying the banks that will accept a high risk account is not an easy task. Even though there appear to be thousands of high risk account providers, there are really only a handful of banks throughout the world that will accept high risk accounts.
It does a business little good to apply to w bank that does not accept high risk accounts. In fact, it is damaging to apply to non-high risk banks because being turned down for an account can actually count against a merchant when being evaluated by other banks. ,
A good initial question to ask is if the acquiring bank to which the high risk account application is being submitted has other high risk accounts in exactly the same type of business as you are. Once you have confirmed that the bank accepts high risk accounts for your type of business, you can move ahead with the application process.
Acceptance for a High Risk Merchant Account
Rates for a high risk account are based on the underwriting for your specific business. Most companies with verifiable processing history can obtain a high risk merchant account with low rates and favorable terms.
Classification in a high risk merchant account category is only a small factor in the underwriting process. The real factor in determining rates for high risk merchant accounts is the specific information about the company which is submitted with the application.
Documents that are most helpful in obtaining account approval is previous processing statements, company financial information, and management experience. During the underwriting process, supply all documents in a timely and organized fashion. Respond quickly to any questions and demonstrate you are a serious and capable business that is well-qualified to be approved for high risk account payment processing.
