Merchant Account And How Does It Work

What Is A High Risk Merchant Account And How Does It Work?



Most of the time when people hear banking, they think of the cool stuff, like getting capital to start a new business or even preparing for retirement. When most people think of a bank, they tend to have certain images in their mind. To some people it is a large corporation or government entity with its arms around almost every facet of society’s commerce and economy. While others may see it as familiar security where one can deposit small amounts into large ones and begin building an account balance that will span multiple lifetimes. All these ideas are true for the most part but there is much more to understand about banks and what really goes on behind the scenes when one opens an account with them than meets the eye.

What is a High Risk Merchant Account?

In order to understand what a High Risk Merchant Account is, one must first take a look at the other side of the coin, so to speak. The first thing that must be said is that no two businesses are alike, they all have their own unique qualities and issues whether they be small or large. Some merchants are considered high risk because they are considered new age and may not have been around for many years or perhaps only since 2008. This means that they do not have years of financial history to rely upon in their credit report. Others may be risky because of their niche or particular product or service that they sell online; others may carry high risk because of their location, business name, level of sales volume or clients.

Significance of High Risk Merchant Account:

The significance of having a High Risk Merchant Account is that the merchant may not have adequate amounts of money to buy advertisements, pay for marketing, support program development and more. Also, if their business model is not working out well, they may have little or no money left to invest in their own future. This means that they cannot expand their business extensively and without the help of a bank who specializes in these types of merchants they cannot get much beyond where they are now.

The other thing to say about this type of account however is that no two businesses are the same either. Some businesses are considered high risk because of their niche and the type of products or services that they sell. For example, an art gallery selling limited edition pieces is more likely to be considered high risk than a large chain store that sells generic items. In this case, there are no guarantees of future sales volume and money spent on advertising is lessened by the niche market they’re selling to as well as by their name as it seems less mainstream than say a mass retailer.

In some cases too, the product or service that the business is selling may be regarded as high risk due to its level of complexity or difficulty; for example if one were handling finicky luxury watches or software programs that require advanced skills. It is also possible that a business may be considered high risk because it is simply new and has not proven its financial merit by way of years in business. In some cases, the business may be very new and the company behind it has not had the chance to build up a financial history because of their short life span.

A High Risk Merchant Account is one that banks consider to be “high risk” for one or more reasons.

Value of High Risk Merchant Account:

There is value in having a High Risk Merchant Account because it will allow the business or person to get their foot in the door and expand their business. They will not have to worry about a large upfront expense for advertising, marketing and more. It is also very possible that by making some changes, these businesses can be recycled from high risk to low risk which would allow them to apply for a more traditional merchant account.

In some cases too, these businesses can benefit in that they can begin with little or no money and grow their way up as they go on. They may not be able to make the big splash right away but they will have ample time to get a foothold before entering the market.

How Does a High Risk Merchant Account Work?

Most banks take one or more of the following steps in order to classify a merchant as high risk:

  1. They begin by requesting financial statements from the business already in consideration for an account.
  2. They review the statements and look for trends or characteristics that indicate that this is not just an ordinary business but one that may have serious financial issues or problems before actually investing time, money and effort into it.
  3. After this review is complete, the bank will take a close look at the business. They will analyze their marketing plan and strategy, they will look at their niche to determine if it has enough market share to be viable and they may also consider whether or not one of the owners has a legal history that may indicate that they have committed fraud in the past.
  4. After everything is said and done, the bank will most likely offer to grant the business an account if any of these things look good or if there are no major red flags.


In conclusion, there are a number of reasons why a business account would be considered high risk. However, that does not mean that it is impossible to get an account with one. In fact, many businesses do get high risk merchant services because of the many benefits that accrue from the bank’s consideration of the account or because of their own willingness to change and adapt their business model. From this perspective then, High Risk Merchant Accounts are not bad deals at all but may in fact be an entrance onto a path to a better future for these businesses.



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