How Do I know if I Need a High Risk Merchant Account for My Business?

If you run a business that sells products online, then you are probably going to want to open a merchant account so that you can take credit and debit card payments. In theory, setting up a merchant account should be easy, after all, if you’re not selling anything you put no load on their servers and if you do sell then the company gets money. It seems like they should be excited to have your business.

Sadly, it’s not quite that simple. Payment processing is not just a competitive business, it is one that is strictly regulated. The companies need to do everything they can to minimize fraud, and this means that they vet the people that they work with carefully. If you want to have a merchant account, you need to apply for one, and you need to convince the payment processor that you are a safe company for them to work with.

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Understanding Merchant Accounts

Merchant accounts are a form of bank account, but it’s one that is set up specifically to handle payments from other people. There are some payment aggregators such as Paypal that act as an alternative to merchant accounts, but a standard merchant account where the payments are taken directly from the user’s card and deposited into your bank account will usually offer far lower fees, and often faster clearing too.  

How Payment Processing Works

When you sell something to someone, the customer provides their card details, and then those details are sent to the card processor, who will ask the customer’s bank or credit card provider if there is enough money in the bank account to cover the transaction. With an ecommerce transaction, that handling of information is conducted through a payment gateway. The payment gateway then returns a response to your shopping cart software, so that the software can either tell the customer that their transaction is being processed, or tell them that the bank declined it, and invite them to try again.

When you set up a merchant account, the company that you sign up with is agreeing to process payments on your behalf. This is actually quite a high risk thing for them. The payment gateway sends over any transaction requests to the merchant processor, that then handles the authorization and settlement files from the card companies. If a transaction proves to be fraudulent, then the holder of that card is entitled to a refund, and it is the payment processor that is liable in the eyes of the card companies. This is why so many of the merchant account service providers dislike working with high risk companies.

Getting Approved for a Merchant Account

If you are a new business or are in a high risk industry then you might struggle to get a merchant account. If you are an established business, then it might be easier for you assuming that you have always conducted your transactions in a professional manner and your previous processor did not have a lot of problems with fraud.

There are a few things that you can do that will make your transactions easier.

1 Collect Financial Statements

Your financial statements will help you to make the case that you are a safe company to work with. Some people dislike handing over their financial information to third parties, but if you want to get the best rates from your payment processor then it is a good idea to disclose them. The companies will want to see that you are financially stable and that you have good cash flow. They will want to know that the company is in a strong position, and if your statements actually show that then you would be doing your business a disservice to refuse to provide them.

If you’re a newer business and you don’t have a lot of data to show them, then look for a merchant services for cbd oil that has more experience with start-ups and co-operate with them as much as you can to get all of the information sorted.

2 – Supply Processing Statements

Again, if you are not a startup then showing your last three months of order histories, including transaction volume, number of refunds, and number of chargebacks, will go a long way towards making your business seem reputable. If you can supply six months of data, then even better, especially if that data reflects your company in a positive light.

3 Write a Letter to Support the Application

In addition to filling out the form, it’s a good idea to write a letter that explains what your business is and what you are looking for. The letter is not mandatory, but if there are any areas on your application that might raise questions, then use the letter as a chance to answer those questions and tell your side of the story.  Treat applying for a merchant account as if you were trying to get a job. The merchant services provider is not required to accept your application, and even if your business is mid-sized, they won’t notice the lack of it, there’s a good chance that they deal with companies that process many orders of magnitude more payments than you do. So, be polite, co-operate with them and answer all of their questions.

If you deal in something high risk such as CBD, then make sure that you look for a payment processor that has expertise with high risk industries. There are some service providers that will examine your website and your terms and conditions, answer questions about fraud prevention, and work with you to help you make your business ‘shut down proof’. It is worth turning to these, even if they charge a little more, because they will give your business some extra stability, and could well be a way for you to build up a history to work with more mainstream providers in the future.