As trade turns virtual, most entrepreneurs realize that their businesses are unable to enjoy normal transactions like other regular merchants. While other businesses qualify for low-risk accounts, you may find most banks classifying your services/products as high-risk.
Business owners fear this classification because it comes with its set of difficulties. Besides increased fees and transaction caps, high-risks are also prone to account terminations, for one reason or another.
That being said, let’s get into the nitty-gritty of high-risk transactions to prepare your risky business for success.
What is a High-Risk Transaction?
It is a transaction that is most likely to collapse at the last minute. High-risk payments collapse for many reasons.
Some of the most common ones include:
- A chargeback request
- Insufficient account balance
- Red flags of fraud
In essence, payment enablers consider any transaction that is prone to cancellation as high-risk.
These kinds of payments happen in nearly all sectors. Businesses that offer travel, accommodation, and subscription offers–that allow you to book/cancel services anytime–are high-risk. Other high-risk payments happen in the gaming, food, and hotel sectors.
How High-Risk Accounts Power & Protect Businesses
Due to their unique nature, high-risk transactions are initiated in different accounts. Unlike your regular savings accounts, high-risk merchant accounts can handle chargebacks due to canceled payments.
These accounts can handle cancellations with ease because they reserve a certain percentage, (often exceeding 5 percent), as a safety net. Because dealing with multiple cancellations and refunds is a technical process, risky businesses rely on these special accounts to protect their money.
High-risk service providers also enable high-risk payments involving different countries with varying regulations, aka risky offshore transactions.
High-Risk Transactions: What are the Charges?
In exchange, banks selling high-risk merchant services charge extra money for this payment convenience.
On top of the regular processing fees and account-related fees, some banks also charge approximately 12 to 15 percent on commission fees. Also, these payments are paid monthly, or annually, which is a better deal. Lastly, some banks are willing to suggest long-term contacts, that go up to 2 years or longer.
Risky transactions require close monitoring. High-risk merchant accounts protect your business by managing all cancellations and safeguarding you from fraud. It also preserves your reputation by ensuring all customers who cancel bookings recover their money.