Acceptance of payments online via a website is becoming a defining condition for the development of many types of business. Finding a reliable payment provider is not an easy task, especially when it comes to high risk businesses (Forex, Gambling, Dating, Casino, ICO, Adult, etc.).
Failure to establish a smooth flow of payments leads to the shutdown of many startups within a few years. An unreliable payment service provider can also cause significant damage to a large international business. Failures most often occur to representatives of high-risk businesses.
If you need to open a merchant account to accept payments, Lawrange team is here to help. We will work out the nuances of your business in order to: a) choose a payment provider with the necessary list of services; b) negotiate with this potential partner and then support you in opening a merchant account “turnkey”.
Features and advantages of the merchant account for the high-risk business
Attention! A merchant account is an account that allows you to receive payments from credit cards, payment systems or electronic wallets. From the technological point of view it is a special code for the merchant’s identification in the single space of electronic payments. Depending on the level of riskiness of the business, merchant-accounts are divided into low, medium and high.
Acceptance of payments through the merchant-account is carried out round-the-clock, on holidays and weekends. There is no need for human intervention in transactions, which is very important for many businesses (gambling industry, forex, dating sites).
The processing of payments through a merchant account includes these links:
- merchant – seller of a product or service;
- client (buyer);
- acquirer – a banking institution that accepts payments;
- processing center – fintech-company that processes payments;
- payment system – intermediary between merchant and acquirer-bank.
If we are talking about payment processing from the card, then to these links is added the issuing bank.
For your information! Processing is payment data processing at the moment of transaction (money transfer from client to merchant). Processing is used to connect to the client’s account. After checking if there are enough funds in the account the sum of purchase is frozen or deducted from the client’s account and transferred to the merchant account. Fees are charged to the payment system and acquiring bank. The processing center provides the interconnection of payment processing chains and conducts transactions in fractions of a second.
To accept payments the payment gateway is installed on the web-site, which is provided by the payment system or acquiring bank. The payment gateway sends the customer’s personal data directly to the payment aggregator and not to the merchant.
In spite of the difficulties in opening a merchant account for high risk, having a merchant account is an advantage and even a necessity to stay afloat in the highly competitive niches. Among the benefits of having a merchant account are:
- the ability to accept payments from all over the world;
- providing the customer with an easy and convenient way to pay;
- lack of connection to working hours;
- increased sales due to simplified payments.
Can the process be connected to any high-risk business? Yes.
What is the average fee for processing payments? 2.5 – 3% + $0.3 per transaction.
Can you help open a merchant account to accept cryptocurrency? Yes.
Opening a merchant account for a high-risk business – basic information
The concept of “high risk business” implies a type of entrepreneurial activity, which is associated with a high probability of difficulties and problems with the law, with unsatisfied customers, with unpredictable jumps in growth and decline in profits.
For your information! Banks often refuse high risk business to open an account, fearing that such a project will fail and or damage the reputation of the financial institution as a business partner.
Among the justified reasons for banks refusing to cooperate with high risk companies is the possibility of a large number of charge-backs, refundable payments. We are talking about cases where money previously withdrawn from the card is returned to the client. The procedure is initiated by the client, arguing his demands for a refund because the merchant didn’t fulfill his obligations. Example – sale of goods or services of inadequate quality, as subjectively considered by the client. The merchant’s bank, where the merchant account is opened, bears full responsibility for the merchant’s charge-backs.
Important! The size of the payment provider’s commission depends on the riskiness level of the merchant’s business. High-risky businesses should not count on low and average rates.
Criteria for high risk business
- Unacceptable charter-back rate (for instance, the acceptable charter-back rate for Visa is 0.9%).
***Note: It is not uncommon for payment Providers to impose the following rule – if the charge-back rate exceeds 1%, the merchant will have to pay an increased fee for processing each return.
- No or little history of transactions on the company’s accounts – the company’s reputation for banks has not yet been established (this riskiness criterion applies to startups).
- The company’s work with high-risk jurisdictions, in particular those included in international sanctions lists (Afghanistan, North Korea, Iraq, Pakistan, Syria, Zimbabwe, etc.).
- High monthly sales volumes or high average purchase receipt – average monthly sales volume is above $20,000, average online payment receipt exceeds $500.
- Receiving recurring payments or subscription payments.
- Merchant has a poor credit history or financial difficulties.
- Questionable, unconfirmed or unacceptable origin of products offered to customers.
- Acceptance of payments in several currencies.
- Rapid growth or surge of business (depending on season or market factors).
- Claims against the company’s beneficiaries by tax authorities.
- Inclusion of the company in MATCH or TMF (Terminated Merchant) blacklists.
- Negative reputation of the business entity on the market, bad credit history.
For your information! Any highly profitable business is considered high risk. Any business classified as high risk must not be regarded as evidence of illegal activity. What is at stake is the ratio of potential profit to possible problems arising from the cooperation between a financial institution and a company.
- astrological forecasts, horoscopes, fortune-telling, tarot cards;
- travel services;
- sale of firearms;
- dating sites, “adult” web sites;
- dues-paying clubs;
- telemarketing, telecommunications (VOIP or Calling Cards);
- problem loan servicing;
- gambling, sports betting, online casinos and the like;
- cryptocurrency projects (funds, exchanges, exchanges, ICOs and blockchain projects);
- sale of medicines and dietary supplements;
- forex projects;
- software sales;
- consulting services;
- a number of other areas.
According to IBISWorld in 2021 the most successful high-risk areas are gambling, air travel, tourism and consulting, with growth rates of 17.6%, 13.2%, 11.8% and 12.4%, respectively.
Selecting a payment provider to open a high risk merchant account
Based on the experience of Lawrange’s customer support, it is quite possible to open an account for a high-risk project. Some payment systems even specialize in working with such companies.
Among the success factors in opening a high risk merchant account:
- providing truthful information about the company’s activities – any withholding of information can lead to a sudden breakdown of cooperation at any time;
- financial stability of the company – you need to show your assets and earnings to prove your ability to cover financial losses, if any;
- provision of previous payment processing history – this information can be used to judge absence of fraud and acceptable repayment rate.
Criteria for choosing a payment provider
- Coverage – accepting payments from different countries.
- Cost – clearly established tariffs that should be known in advance (they will surely be higher than for low- or medium-risk businesses).
- Technical support – the ability to solve any unforeseen problems of customers around the clock, which increases the conversion rate and reduces the number of chargebacks.
- Multicurrency – currency conversion in the real-time mode.
- Security – using modern tools to detect and prevent fraud.
- Additional capabilities:
- recurring payments – regular payments (autopayments);
- payments tokenization.
Documents for merchant account opening
- completed application for merchant account opening;
- set of incorporation documents for the company;
- scanned copies of personal documents of beneficiaries and directors (notarized);
- proof of residency (utility receipts are the best option) no older than three months;
- document that proves ownership of the domain;
- previous processing history;
- optionally – copies of contracts with manufacturers, suppliers of goods offered on the site, or invoices for goods supplied;
- a description of the company’s activities.
***Note 1: The above documentation package is only a guide. Additional documents and information may be required when opening an account.
***Note 2: Documentary requirements may specify time limits for validity. For example – an extract from the commercial register must not be older than three months.
How to open a merchant account for a forex broker (fx)?
Over $5 trillion passes through OTC online transactions between traders in the international foreign exchange market every day. Currency trading is done electronically. It’s an industry with potentially high profits that attracts more and more new entrants. But while millions of new traders and thousands of new firms have entered the Forex industry in recent years, the number of companies providing reliable services on the foreign exchange market has shrunk.
For your information! The main reason why forex brokers are considered to be high-risk businesses is too large amount of payments for a short period of time.
Important! When opening an fx account you should consider the possibility of exceeding your monthly payment processing limits.
Usually payment providers limit the monthly volume of forex business in order to hedge their risks. This is a convenient step for payment service providers. But it is detrimental to the brokerage business. Forex brokers that grow too fast often can’t process all the transactions sent through the Web site. This problem can ultimately damage a firm’s reputation and brand.
Another significant aspect of opening a forex merchant account is the use of multiple currencies to successfully serve clients.
Banks and payment systems prefer to work with reputable brokerage companies with a solid reputation. Beginner brokerage companies have a small volume of sales and have not yet gained a reputation on the market. A common reason for the rejection of applications to open a forex trading account is the lack of credible financial documentation. These are bank statements and payment processing reports. These documents are the main indicator of the business health.
For your information! Reputable brokers get merchant accounts faster. But with the right approach, start-up firms also have a good chance. Although the lack of financial reputation entails a longer underwriting process. Having a license can make the task of a merchant account easier.
How to open a merchant account for dating projects?
The online dating market is strengthening its position, and is one of the five largest business areas on the Internet. In this case, the average check for the transactions in the area of dating is €5. And this fact (small amounts of payments) is one of the main features of this business. But on the other hand, transactions are conducted quite often. And this is the second important feature of this business.
Important! When choosing a payment provider for dating should take into account the anticipated turnover, the characteristics of the target audience and its geography. Dating sites differ in their specifics and countries of coverage. Accordingly, this should be taken into account when selecting payment solutions.
Depending on the objectives you may need:
- local payment methods (other than connecting the usual bank cards Visa and MasterCard);
- payment support via SMS or direct billing of service providers;
- recurring payments (regular autopayments).
How to open a merchant account for pharmaceutical companies (pharmacy)?
Sale of medical products, toiletries, vitamins and cosmetics in wholesale and retail online is an industry which is associated with mandatory compliance with legal requirements, and a high probability of customer dissatisfaction (chargebacks as a consequence). This is the reason for the assignment of this direction to the list of high-risk businesses.
Important! In order to open a pharmacy merchant account, it is important first of all to comply with the legal requirements. In order for the online pharmacy application to be approved by the payment provider, it is necessary to provide a pharmaceutical license, as well as documents confirming stable and successful operating activities.
There are high fines for violating pharmaceutical regulatory policies in almost all countries. And these penalties are imposed not only on merchants, but also on the payment systems that cooperate with them. Therefore, payment service providers seek to minimize risks.
Several other lines of business can be considered related to pharmacy. Factors similar to those mentioned above should be taken into account when opening merchant accounts for them. We are talking about the following types of business:
- nutra – sale of dietary supplements (nutraceuticals);
- Cannabidiol industry (CBD);
- MMJ – sale of medical marijuana.
***Note: The use of CBD and MMJ is legalized or not prohibited only in some jurisdictions.
How to open a merchant account for various high risk businesses?
In addition to solving the problem with the selection of a payment provider who is ready to work with high risk in principle, you should take care about the set of necessary services for accepting payments, taking into account the specifics of business, and the right dialogue with the payment service provider. Let’s look at some examples.
Gaming Merchant Account
The peculiarity is that it is necessary to provide not only payment acceptance but also payouts (cash prizes) to the players. That’s why you have to take care of both incoming (pay ins) and outgoing (payouts) payments. All kinds of payment methods should be supported, first of all SEPA and SWIFT bank transfers for large transactions, “one-click transfers”. In some cases, recurring billing is needed. Among the important success factors in such activities is a reliable fraud prevention and chargeback system.
Merchant accounts for lending to companies with bad credit histories
Although most payment providers refuse to service merchant accounts for this type of business, a solution can be found. The specifics of the dialogue with a potential payment service partner is complete openness, honesty about every detail. The distressed credit business is showing good growth, so financial partners will be found.
Cryptocurrency merchant account
Due to recent global trends, the attitude towards cryptocurrency is polarized. On the one hand, a number of jurisdictions impose bans on cryptocurrency, on the other hand, many representatives of big business recognize non-fiat currency as the currency of the future. Although a number of financial institutions categorically refuse to work with cryptocurrency, some payment systems specialize in this direction.
When opening a merchant account for a cryptocurrency project, the payment provider will have to prove that the business is reliable, the management is experienced, and there are solid and long-term plans for the future. An application to open a merchant account should be supported by a package of documents. However, prepare yourself for any additional requirements that may arise.
Having a merchant account is now at the forefront of online business prosperity. And while high-risk lines of business have some difficulty opening such an account, the benefits fully cover the costs on the way to achieving the goal. Moreover, you can always count on the qualified assistance of experts in the field of legal support for international business – Attorneys association Lawrange team.