All business ventures feature a fair level of unpredictability. Avoiding certain hazards seems obvious, while other risks could be well worth the game. One situation isn’t as clear-cut as it can certainly seem. Even though the name seems threatening, dangerous bank card processing might actually be beneficial for many merchants.
What is Heavy Risk Credit Card Processing?
Before accepting visa or mastercard payments, an enterprise must have a merchant card account by having an acquiring bank. The two main categories of merchant accounts: low risk and high risk. For the thorough explanation of high risk merchant account credit card processing, check our knowledge base article.
A high risk payment processor is going to be required if the industry is perceived as risky. Few traditional processors accept high risk clients and lots of dangerous payment processors operate overseas.
Generally, processors avoid these “dangerous” merchants due to perceived risks. There are many stipulations which make these high risk merchants a menace to stable banking practices. Generally, the threat comes by means of elevated chargebacks. Several factors increase the danger of chargebacks:
The goods and services the merchant offers
The sales method (for instance, organic SEO tactics are less risky than internet affiliate marketing)
The mode of processing the transaction (for example, card-present vs. card-not-present transactions)
The typical dollar amount for monthly sales and individual transactions
The countries the merchant sells to
It seems sensible that chargebacks are a determining risk factor. However, there are many other dangerous contributing factors that wouldn’t normally be considered dangerous. Let’s take a look at the particular pros and cons of securing a processing account having a heavy risk payment processor.
Cons of High-risk Visa Or Mastercard Processing
As you’ve already guessed, there are some disadvantages for being labeled “high risk.”
Because processors assume chargebacks are inevitable for high risk merchants, they impose excessive fees from the get-go.
By way of example, the setup fee may be more than $300 for a high risk processing account. High risk monthly fees are usually about $10 more than low risk merchant accounts. While traditional merchant accounts charge a processing fee between 1.5% and two.%, a high risk merchant can anticipate to pay between 3.5% and 4.5%.
Unless a company has significant earning potential, these elevated fees can quickly put a high risk merchant away from business.
A credit card merchant account reserve is usually needed by a high risk payment processor. The reserve is a non-interest bearing savings account employed by the acquiring bank in emergency situations to protect its assets. If your chargeback is filed against a company and the merchant isn’t able to reimburse the issuing bank from the regular account, the reserve will be used to cover the loss.
Most heavy risk merchants have a rolling reserve. A portion of the monthly sales are held in reserve and then gradually released after having a predetermined length of time has gone by.
Heavy risk merchant reserve accounts usually withhold 5-10% of monthly sales for 180 days. After 180 days have passed, the funds will gradually be released on the merchant. As an example, the quantity deposited in the reserve account in January will probably be released in July, February’s profits will be released in August, and the like.
Technically, the funds inside the reserve account are definitely the merchant’s; however, these funds can’t be accessed until 180 days have passed. This restricted access to revenue may cause serious income issues for high risk merchants.
All merchants must pay chargeback fees. Financial institutions expect the merchants to cover the administrative tasks related to processing a chargeback.
However, high-risk merchants pay even higher chargeback rates. A very high risk payment processor could have higher fees for each and every individual case filed against a merchant. Additionally, 81dexlpky heavy risk merchant who strays into an excessive chargeback environment are going to pay much more.
Visa has three chargeback monitoring programs. These programs carefully track chargeback levels and assess fines when chargeback activity becomes excessive.
One program, High Brand Risk Chargeback Monitoring Program (HBRCMP), applies specifically to heavy risk merchants. With HBRCMP, there is no warning or workout period. Fees are immediately assessed for the acquirer, who then passes the financial punishment along to the merchant. HBRCMP fees is surely an extra $100, included with traditional chargeback administrative fees.
Since, obviously, dangerous merchants happen to be in greater danger of sustaining chargebacks, these extra fees are especially costly.