If you have been doing great with your cash-only payment policies for your business, pat yourself on the back for that! But are you among those who lost many customers just because you didn’t offer them flexible payment options? It is not easy for everybody to carry cash always, and so they prefer credit or debit card payments. It’s high time that you offer your customers that flexibility in your payment options, as it is beneficial for both parties.

As long as you are operating a retail store, simply sticking to cash payments can be an option if a high risk merchant account is too expensive or difficult to obtain. However, it’s nearly impossible to run an eCommerce store without providing flexible card payment options. This means you need to open a high-risk merchant account, which might sound bad at first. But in some cases, it can be the most suitable solution for your business.

High risk merchant processing refers to credit card processing and involves electronic transactions, which are sensitive to fraudulent acts. This leads to a liability for card misuse that exposes a business and leads to significant financial losses. So, it is mandatory that you consider both sides of the coin and weigh the risks associated against the numerous benefits that a high-risk merchant account offers.

If you are worried about managing a high-risk business account and skeptical regarding accepting electronic payments, you can also opt for low-business merchant accounts. To help you make better-informed decisions, here’s a discussion on how the two differ from each other.

●    Fees

In the case of low risk merchant accounts, the fees are generally low as compared to the high risk ones. Moreover, there are additional charges levied if you have a high risk account. The bank might deny transactions made via high risk merchant accounts in some cases, and even if they do, they impose high rates to help mitigate the risks involved. Because a risky merchant account might sometimes cost the bank money. The chargeback ratio for a low risk account is almost negligible to very low.

●    Multiple Currencies

For high risk merchant accounts, you will have the option to accept multiple currencies across the world. It is because high risk companies usually serve international clients and hence, accept payments in several currencies. This is not so for the other type of merchant account, where you will have to accept only one currency.

●    Fraudulent Cases

As mentioned earlier, you might need to deal with a high number of fraud activities if you have a high risk account. Because there are numerous credit card data misuse cases associated with electronic transactions. Hence, a merchant account provider might impose stricter rules and restrictions on a high risk business.

However, in the case of a low risk merchant account, the chances of fraud are very low since there are no electronic payments made. Also, you can implement 3D Secure for preventing all fraud activities.

●    Products/Services Sold

A low risk merchant can sell only low risk products, including stationery, books, clothing, or general household goods. On the other hand, businesses dealing in tobacco, vapes, drugs, CBD, nutraceuticals and supplements, e-cigarettes, casinos and online gambling, adult entertainment, telemarketing, VoIP, firearm ammunition, and the like are termed as high risk merchants.

The financial industry, too, falls under the high risk merchant category because of its unpredictable nature. Apart from that, the category includes airlines and law firms as well, which involve high chargebacks and survival issues, respectively. Other risks involved in a high risk business are instability (as in online gaming), strict regulations and policies (as in the adult industry), and risky online transactions made, especially of high amounts (as in casinos and online gambling).

●    Payment Process

For low risk merchant accounts, the overall payment procedure will generally be smooth and risk-free. However, for merchant accounts involving high risks, there may be multiple denials from the banks and other payment gateway services. It hampers one’s payment experience and increases the chances of fraudulent acts. This further generates a higher number of complaints from the customer’s, thus ruining the brand name.

●    Monthly Sales Volume

High risk companies can make an average of over $20,000 monthly sales volume, which is much lesser in case of a low risk business. However, the monthly credit transaction is more than $500 for high risk merchants, which is again lesser in case of the other.

●    Time of Purchase and Consumption

Most high risk business customers buy their products beforehand and consume them soon after. For example, in airlines, a customer will travel immediately after booking a ticket. Even if s/he makes an advance booking a few months ago, s/he will be able to use the service only for the booked time period. However, in case of a low risk merchant, your consumers may utilise the products days after purchase, as with grocery items.

●    Financial Stability

High risk businesses don’t have much financial stability, and keep switching from high profits to extreme losses, depending on the supply-demand chain. Low risk merchant accounts, in general, have financial stability as there is a steady supply-demand flow. The major reason lies in the type of products sold and their consumption rates in the market. Additionally, a low risk merchant account opts for a safe and secured payment processor.

Conclusion

In short, the difference between high risk and low risk merchant accounts lies in the way they are treated by their merchant account providers. Your business will fall under one of these categories to evaluate the degree of financial risks involved. It is advisable that you do your own homework before deciding which merchant account to apply for.

Always talk to your merchant account provider before categorizing your business. Some providers impose certain exceptions on some particular business categories, so discuss with them first. Making wrong decisions and baseless assumptions might create a big hole in your pocket!

However, be cautious while choosing your provider and read all terms and policies before signing the deal. Understand the risks involved and find a partner who is providing reasonable rates and is willing to work with your particular business type.