Merchant Account 101: Conventional vs. High Risk

Do you have a TMF?

When applying for a merchant account it is important to be prepared. How do you know if your business is conventional or high risk? The answer is determined by how much of a risk you are to the processing bank. The higher the risk you are, the higher your rate is going to be. There are many things that can affect your risk factor, for example your business type, processing history, and financial stability. If your business type is at risk for charge backs the bank will consider you high risk. Examples would be online pharmacies, tech support, and adult related companies. Start-up companies are higher risk than businesses with processing history because there is no proof that they can run clean transactions with no chargebacks. History can also affect your negatively. A history of high charge backs (over 2%), or if your company has been listed on terminated merchant file (TMF) will look worse than no history. Financial stability has a great effect on your discount rate. If the business or the signer have a bankruptcy, low credit score, or negative bank accounts the banks will see this as risk.

If any of these issues apply to you, look into fixing them before applying. If you have personal finance issues, find someone else to sign for the account with better financial stability. It will be important to list them on your corporate docs and registration before applying. If you owe a past processor money, pay the amount and get the TMF cleared. If you run a high risk business type, put security and fraud prevention systems in place to ward off charge backs. If you have a history of high charge backs, put systems in place to fix the issue then write the bank a letter stating how you plan to change this and reduce your charge back percentage. Most charge backs can be eliminated by shipping your products in a timely manner and providing good customer support and high quality product or service. Many charge backs are triggered because the merchant is not producing a quality product or service.

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