In this current digital era where electronic payments and eCommerce are taking larger and larger chunks of revenue, how can you personally, as a business owner, know whether to accept credit card payments through a payment gateway or a merchant account? If you are one of many who don’t know where to start, let’s explore some of these finer points of merchant accounts versus payment gateways, and also how running a high risk business will affect how you process your customers’ credit card payments.
High Risk Processing Industries
Before weighing the options between merchant accounts and payment gateways, you must first decide if your business is in a high risk processing industry. This is important especially when you’re starting an eCommerce shop because the most popular and simple to solutions to payment processing offered through PayPal, Stripe, or Square will not accept high risk payments once their underwriting process has concluded that your business is high risk.
If you’re wondering if your company could be categorized as a high risk processing business consider the following. Are the credit card chargeback rates typically high on your industry? Does your company run on a subscription, recurring, or continuity billing model? Are purchases regarded as high ticket items? Does your business have, for lack of a better word, a taboo reputation ? Does the market face heavy government regulations or laws.
If you answered any of these questions with a yes even a maybe, then you’ve got a high risk business on your hands. Let us walk through the basics between high risk payment gateways and high risk merchant accounts, in order to know which the best way to payment processing is ideal for your company.
Payment Gateways
Payment Gateways are primarily eCommerce services that authorize a customer’s credit card payment information to be processed by an acquiring bank and then moved to your business’ bank accounts. The biggest eCommerce platforms like BigCommerce, Shopify, and Magento have built in payment gateway integrations which can make accepting credit card payments a cinch. But should you know about your business is high risk, you want to avoid signing up for a normal payment gateway from the start since you’re almost guaranteed to get your account frozen and charge card transactions interrupted after their underwriting process is done.
If you know your company is high risk, before you sign up with any payment gateway, you want to secure a high risk merchant account so the gateway has a safe place to send your payments.
High Risk Merchant Accounts
A merchant account is a fancy name for a business bank account. Merchant accounts have been around because credit card payments have been accepted in brick and mortar shops for decades, but they also play a major part in eCommerce and payment gateways. Merchant accounts are at the end of the payment processing journey. Payments typically get encrypted, processed, and accepted through payment gateways and the funds wind up in a company’ merchant account.
There are two types of merchant accounts, aggregate and dedicated. As a high risk business owner, you would like to seek out a dedicated merchant account for your company because your elevated risk status will block you from using an aggregate merchant account. Aggregate merchant accounts are shared by a wide range of business with varying levels of risk, so if your business is found to be too high risk, you’ll get kicked out of the aggregate merchant account by your payment processor. Dedicated merchant accounts have been installed for your company alone and you will receive custom processing charges based upon your business’ risk profile.
Apart from ordinary dedicated merchant accounts, there are high risk merchant accounts. As a high risk company, this is what you are looking for. High risk merchant accounts usually always come with higher prices because of the probability of credit card chargebacks. The acquiring bank that sets your high risk merchant accounts utilizes what’s called a rolling rolling reserve. That is a percentage of each transaction that is held for some quantity of time that protects the acquiring bank from financial losses due to possible chargebacks.
Getting approved for a high risk merchant account can be a drawn-out process and if you don’t understand the finer details around payment processing, and you may get taken for unnecessarily substantial prices. Luckily, if you know you have a high risk business and need help securing a high risk merchant account and payment gateway, then you need to seek out a payment processing solutions provider. These experts will typically have several relationships with acquiring banks and know the ins and outs of high risk businesses. If your business needs a high risk merchant account, the most cost-effective route would be to go through a payment processing solutions provider.
So if you think you have a high risk business, be prepared to research your risk status before launching your eCommerce shop with a credit card processor. Being prepared with the right merchant account and payment gateway can help you avoid a huge hit to your bottom line.