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What You Need To Know About High Risk Merchant Accounts

High risk merchant accounts are essentially accounts that are given to a business when the giving authority is of the view that this particular business is likely to commit fraud and cost chargebacks for the payment processors. payment processors are bodies that manage credit card transactions and act as mediators between the banks and the merchants involved. Payment processors tend to pass this judgement about businesses on the basis of the business’ nature of operations, its location, its history and its directors. The following article shall act as a guide for beginners and about all they need to know about high risk merchant accounts. For a more detailed account visit

What are merchant accounts?

In order to understand high risk merchant accounts, individuals should first understand the purpose and need of merchant accounts. merchant accounts are accounts provided by payment processors that are deposited with debit and credit transactions by customers once the transactions are fully processed. The accumulated funds can later be transferred to the merchant’s bank account within a day or two. While merchant accounts essentially help the payment processors mitigate risks associated with fraudulent transactions, the merchants may fail to acknowledge or repay fraudulent transactions when asked for a refund, especially when the amount has already been transferred to their bank account.

What are high risk merchant accounts?

High risk merchant accounts are a category of merchant accounts that are deemed risky by payment processors. Whenever a merchant applies for a merchant account, they provide important information such as business information and tax details and go through a credit check. If payment processors feel that a certain merchant is likely to cost them chargebacks, they simply either deny them a merchant account or submit them with a high risk merchant account which results in high fees. Different payment processors, however, have different ranking criteria for high risk accounts, and if one processor deems a merchant as high risk it doesn't mean that another is likely to do the same.

Characteristics of high risk merchant accounts

High risk merchant accounts essentially have the following characteristics:

  1. They have tiered pricing

Tiered pricing refers to a fee pricing strategy in which the payment processor charges the high risk merchant a transaction fee on the basis of how risky each transaction may seem. Hence, high risk merchant accounts can face different charges for different transactions.

  1. They have early termination fee

If high risk merchant account owners want to terminate their contract with their payment processor before its expiration date, they are supposed to pay an early termination fee. This fee depends on the negotiated terms between the payment processor and the merchant.

  1. They require a reserve

certain payment processors ask high risk merchant accounts to maintain a reserve of their funds like a hedge in case of fraud and chargebacks that the payment processor may have to incur. This ensures that the payment processor does not have to pay the money for the chargebacks out of their own pocket.

  1. They have high chargeback fees

Chargeback fees is essentially a fee that payment processors charge from merchant accounts whenever a chargeback is incurred. For high risk merchant accounts this fee is likely to be very high when compared to a regular merchant account.

  1. They have account freeze clauses

Payment processors can freeze high risk merchant accounts if they feel that a particular account has become riskier over a period of time. for repeated chargebacks and fraudulent cases, payment processors can even terminate high risk merchant accounts on an abrupt basis. High risk merchant accounts don't essentially have a lot of bargaining power over payment processors and hence cant negotiate their terms over a certain limit.

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes

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