A high risk merchant account is essentially a line of credit from an acquiring bank.  The bank gives a high risk merchant the ability to accept payments for goods or services and hopes that the buyers will be satisfied.  High risk processing presents greater risk of loss than standard payment processing.

If a high risk merchant does not deliver the goods or if a buyer is not satisfied with the goods, the buyer can initiate a chargeback.  Further, a high risk merchant is frequently the target of cybercriminals seeking to perpetrate fraud which further increases the risk of high risk processing chargebacks.  If the high risk merchant is goes out of business or does not have the financial wherewithal to satisfy chargeback liabilities, the high risk processing bank is ultimately left holding the bag.

As a result, a high risk processing acquiring bank will examine a high risk merchant business carefully before accepting the company as a customer.  Here are a few items high risk processing bank underwriters look at during the high risk merchant account application process.

None of these items alone will prevent a high risk merchant from obtaining processing.  However, a high risk merchant should be aware that a high risk processing acquiring bank is looking at these variables and do whatever is possible to present its business in the best possible light.

1. How long has the company been in business?  Naturally, a high risk merchant that has business history presents less of risk than a start-up company that has no established banking or financial credibility.
2. How do the business financial statements look?  For a high risk merchant that is requesting substantial processing volumes, the high risk processing acquiring bank examines business P&L and Balance Sheets.  Underwriters pay special attention to ratios such as debt-to-equity as well as positive and negative cash flows, funding sources, and how much money the high risk merchant has in bank accounts.
3. In what industry is the high risk merchant classified?  Some industries have statistically higher incidents of chargebacks and fraud and these high risk merchant categories represent a higher potential for loss for the high risk processing acquiring banks.
4. How does the high risk merchant bill for goods or services?  Billing upon delivery is a lower risk business model than billing in advance.  And billing for monthly subscription or recurring payments is less risky than billing quarterly or yearly.

A savvy high risk merchant will take the time to build a positive relationship with the underwriting department during the application process.  It is an easy way to assure long-term high risk processing success.

This entry was posted on Tuesday, September 6th, 2011 at 2:07 am and is filed under High Risk Merchant Account. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.