High-Risk vs. Standard Merchant Accounts: Fees, Reserves, and Hidden Costs Compared

A merchant account is the best way to accept electronic payments worldwide. It gives the owner the ability to broaden his horizon and expand his business overseas. However, when dealing in high-risk industries like CBD, Gambling, or adult entertainment, he might need something more robust. Here, high-risk merchant accounts come to the rescue, streamlining his payments efficiently. These accounts help owners process high-risk payments with a slightly higher chargeback ratio, but without the risk of fraud. In contrast, standard merchant accounts are designed for businesses with low chargeback rates and minimal risk of fraud. These businesses typically operate in stable industries with a low history of disputes and regulatory concerns.

But how does a high-risk merchant account actually differ from a low-risk account in terms of cost, reserves, and fees? Let’s dive into the details and understand the difference between them together!

Which Merchant Account is Perfect To Process High-Risk Payments?

Both accounts provide a unique set of benefits to businesses. However, for high-risk industries, high-risk merchant accounts are preferred with a slight discount rate. Here are some key differences between the accounts when handling high-risk payment processing. 

1. Fees

One of the most noticeable differences between high-risk and standard merchant accounts is the cost. High-risk accounts usually come with higher fees in order to offset the increased financial risk associated with processing payments for businesses that are more likely to face chargebacks or fraud.

• High-Risk Merchant Account Fees: Businesses classified as high-risk often face higher transaction fees, monthly service fees, and in some cases, a setup fee. These exact fees can vary depending on the merchant account provider and the level of risk associated with the business. For example, the ACH settlement for high-risk accounts could be as high as 3% to 5%, whereas standard accounts typically range from 1.5% to 3%.

• Standard Merchant Account Fees: Standard merchant accounts, on the other hand, are generally associated with lower transaction fees, lower monthly fees, and no setup costs. These accounts are typically suited for businesses in stable industries with low chargeback or fraud risks.

1. Rolling Reserve Percentage

High-risk merchant accounts often require a rolling reserve to cover potential chargebacks. A rolling reserve is a percentage of the merchant’s revenue that is held by the payment processor for a period, often from 30 days to six months. This reserve also acts as a safety net to cover any chargebacks or clashes that may arise.

• Rolling Reserve in High-Risk Accounts: The rolling reserve percentage can range from 5%-10% of the merchant’s monthly sales. This means that each month, a portion of the funds earned will be withheld by the payment processor until the rolling reserve period ends. For businesses with high chargeback rates or a greater risk of fraud, this is a common requirement.

• Standard Accounts: Standard merchant accounts usually do not require a rolling reserve, as the risk of chargebacks is lower. This allows businesses with standard merchant accounts to have more cash flow flexibility since all funds are processed and available for use immediately.

1. Contract Terms and Restrictions

The contract terms for high-risk merchant accounts tend to be more stringent compared to those for standard accounts. These terms may include clauses regarding chargeback thresholds, potential penalties, and termination policies.

• High-Risk Accounts: Payment processors for high-risk industries may set high chargeback thresholds (such as 1% of total sales) and enforce strict penalties if these thresholds are exceeded. Additionally, the contract may include termination clauses that give the payment processor the right to cancel the account at any time if the business’s risk profile changes or exceeds acceptable limits.

• Standard Accounts: Standard accounts typically have more lenient terms, with lower chargeback thresholds and fewer penalties. The contract terms are more flexible, and the provider is less likely to terminate the account unless there are major issues with the business’s performance.

Hidden Costs in High-Risk Merchant Accounts

While high-risk merchant accounts are designed for businesses in risky industries, these accounts often come with hidden costs that can add up over time. If you work with the Best High-Risk Merchant Account Providers, they will make sure to design a plan that aligns with your goals with the least hidden charges. However, these hidden costs are important to factor in when considering the total cost of payment processing.

1. Chargeback Fees: High-risk accounts are more likely to face chargebacks. In addition to the loss of funds from the original transaction, merchants are often charged a fee for each chargeback, which can range from $15 to $50 per occurrence.

2. Chargeback Monitoring Fees: Some payment processors for high-risk accounts charge additional fees for chargeback monitoring services. These fees can add another layer of cost to the business.

3. Interchange Fees: High-risk businesses may also face higher interchange-plus pricing compared to standard businesses. Interchange costs are set by credit card networks, such as MasterCard or Visa, and can vary depending on the type of transaction. High-risk merchants often experience higher interchange rates, which can increase the overall cost of each transaction.

4. PCI Compliance Costs: Any merchant processing credit card transactions must adhere to PCI compliance standards to protect customer data. High-risk merchants are more likely to face additional costs related to maintaining PCI compliance, such as annual audits and secure network upgrades.

Here is a summary: 

Final Thoughts

The choice between a high-risk merchant account and a standard merchant account ultimately depends on your industry, chargeback history, and risk profile. By understanding these key differences, you can make a wise decision and choose the best merchant account to process high-risk payments effectively. You can get assistance from a professional who can guide you through the process and assist you in deciding which approach is right for you.

When operating in a high-risk industry, a high-risk merchant account is often recommended. This account prevents fraud and streamlines payments smoothly. For this, you can always take help from Cathedral Payments to get tailored solutions for your high-risk business. With flexible terms, competitive fees, and expert support, we ensure your payments are processed securely and efficiently.

Book an appointment and get a high-risk merchant account tailored for you by Cathedral Payments now!