Low-risk merchant accounts: Insiders Guide
In the payment processing industry, merchant risk refers to the level of various types of risks that can be associated with a merchant when onboarding for a payment processing account. The payment industry classifies merchants mainly into two categories: low-risk merchants and high-risk merchants. Sometimes we also hear of those who fall in between low and high risk. The merchant risk classification is generally based on factors such as likelihood of chargebacks, reputational risk, regulatory challenges, and complexities.
The Merchant risk is also calculated based on the type of industry the business operates in, what kind of volume they process each month, whether they accept international transactions or just local transactions, and what’s the possibility of customers disputing the transactions or requesting refunds. The Merchant risk classification helps acquiring institutions to avoid difficult merchants getting access to the payment solution.
The risk profile of the merchant plays an important role in defining the relationship of the merchant with the payment processor. Low-risk merchants are considered secure and stable and that is why they enjoy lower transaction fees. Such accounts are set up fast and are onboarded with fewer documents. These accounts stay active for a long period of time; basically, low-risk merchants hardly face sudden shutdown or account hold or terminations. Banks and payment processors consider low-risk merchants to be highly reliable.
On the other hand, if the merchant’s risk is high, then the prices that the merchant pays using the services provided by the processor are also high. The processor also takes longer time to get the account. Payouts are also not as quick as low-risk merchant accounts. Read more about high-risk merchant accounts here.
Any merchant that is looking forward to accepting credit card payments online or at retail store, it is extremely important to identify whether that merchant is classified as low-risk or not. Being aware of that fact can help the merchant prepare well and improve the chances of approval.
Quadrapay has been a reliable source of low-risk merchant accounts for businesses across US, Canada, UK, and the European Union since the year 2016. Our team has designed this guide, what we call the Swiss army knife of low-risk merchant accounts. In this article, we will talk about various aspects related to low-risk merchant accounts. You will be able to identify industries that are considered low-risk because of minimum fraud and legal complications. Such industries maintain a consistent transaction pattern. Reading this guide, you will be able to understand whether you qualify as a low-risk merchant? How to find a cost-effective low-risk merchant processor, tips to improve your risk profile, rates and fees associated with low-risk merchant accounts, KYC documents that you will need to submit to the processor, application process and various frequently asked questions related to low-risk merchant accounts. Let’s begin.
What is a Low-Risk Merchant Account
A low-risk merchant account is a specialized credit card processing solution for businesses that operate in general industry and display predictable transaction forecasts. These merchant accounts are provided by sponsor banks and payment processors to those merchants that have historically proven track record of minimum chargeback rates, negligible fraud, and regular transaction volume.
All payment service providers consider low-risk merchants to be highly reliable and that is why these merchants get preferential treatment such as highly affordable pricing, super fast onboarding, quick fund settlements, and access to local as well as international card processing. Businesses that are categorized as low-risk merchants generally serve customers in regulated markets and have a transparent, customer-centric refund policy.
Features of Low-Risk Merchant Accounts
Low rates: When a payment service provider offers a low-risk merchant account, it incurs minimum risk when it comes to processing transactions for the merchant. This is why the payment processors do not mind to pass these savings to the merchant in the form of reduced merchant discount rate which includes the interchange fee. Minimum or nil monthly fees and negligible transaction costs. Any business that qualifies for a low-risk merchant account operates the merchant account at reduced cost which allows the business to be able to offer competitive pricing to the customer.
Faster Approval Processes: Sponsor banks generally require less documentation and fewer background checks when they underwrite low-risk merchants as these businesses have minimum financial and operational risk exposure. With quick setup, merchants can start accepting credit and debit card payments faster and avoid lengthy onboarding time that is generally associated with high and mid-risk merchants.
Stable Account with Fewer Restrictions: Low-risk businesses generally do not face problems like sudden account freezing, payment hold, or terminations because the overall risk exposure is very low. These accounts stay active for a long time. Merchants can generally process transactions without worrying about restrictive volume limits. Proactive audits and regular monitoring on these accounts are also lesser than what applies to high-risk merchants.
Apart from the above-mentioned features, certain other benefits are also associated with these accounts. For example, low-risk merchants generally have access to priority support from the payment processor. They also have access to advanced analytics, fraud prevention tools, and better business funding options known as merchant cash advance.
Who Qualifies for a Low-Risk Merchant Account?
Now that you know about what a low-risk merchant account is and its features and benefits, it’s time for you to understand who can actually qualify for such profit-friendly accounts.
Merchants operating in a variety of industries can actually qualify for low-risk merchant accounts. Some of these industries include retail stores (whether physical or online) that sell household goods, clothing items, books, and electronics. Businesses that offer professional services such as consulting, education, healthcare, and company formation. Certain subscription-based business models with stable revenue patterns also qualify for low-risk merchant accounts, such as software-as-a-service providers.
Another trait that payment processors look at in low-risk merchants is their chargeback ratio should be consistently below one percent, and their monthly transaction volume should be within the predictable range of $20,000 to $50,000. For a low-risk merchant account, generally the average transaction size should be less than $500. Payment service providers prefer low-risk merchants to primarily focus on local or regional businesses, and if they are targeting international customers, then that target market should be regulated. Generally, for a low-risk merchant account, the processor will ask the merchant to submit at least 6 months of transaction history or bank statements. A good financial transaction history displays the financial strength of the company.
Low-risk merchants generally prefer to accept payments through credit and debit cards in secure mode. Generally, these merchants prefer to use security features like 3DS, AVS, CVV. Apart from credit and debit card processing, these merchants rely on local alternative methods of transactions like ACH/Echeck/EFT and Interac transactions.
Role of Low-Risk Merchant Processors
Low-risk merchant processor is the acquiring institution that offers low-risk merchant accounts to qualifying businesses. These payment processors design solutions that meet the processing needs of businesses operating in stable industries. A low-risk merchant processor works as an intermediary between the merchant and its customers. The primary objective of the payment processor is to enable quick and secure credit card transactions. These processors allow merchants to accept one-time or recurring payments from their customers, and their solutions are generally scalable and can adapt to the changing volume requirements of the merchant’s business. Most low-risk merchant processors offer easy integration to various payment gateways, platforms, point of sale systems, and mobile applications.
Low-Risk Merchant Services Include a variety of services such as credit and debit card processing. When it comes to credit card processing, most low-risk merchant services companies allow businesses to accept all major card types. They also support ACH and echeck processing as well as recurring billing solutions. Merchants can customize the billing cycle for the customers, for example, they can accept daily, weekly, monthly, or annual transactions as per the agreement with the customer. Many merchant services companies provide digital tools like sending automated notifications to customers about upcoming payments or failed transactions. Subscription payments help merchants reduce manual workforce requirements for billing purposes and also help the business enhance overall customer satisfaction.
Advanced analytics helps merchants gain insights into recent transactions and understand consumer behavior and recent sales trends. By carefully observing metrics like average transaction size, preferred payment methods, and customer demographics, it can be very easy for merchants to adjust their sales and pricing strategies to improve their numbers. Some low-risk merchant services companies also offer customizable reports for tax filing and financial audit purposes.
All well-known low-risk merchant services companies fully comply with the Payment Card Industry Data Security Standards. They provide full assistance to the merchants in a step-by-step manner so that the business meets the PCI requirements. The payment gateway used by low-risk merchant services companies are secure and use advanced features like tokenization and encryption. This helps reduce the risk of database and fraud and also reduce the possibility of fines and penalties for non-compliance.
Access to round-the-clock support team helps merchants easily resolve any issues with their merchant account and payment gateway. Most low-risk merchant services companies offer support via phone, email, and chat. Faster resolution of issues means minimum disruption of business operations. Highly trained customer service agents provide personalized advice regarding the usage of the merchant account.
Choosing the Right Low-Risk Merchant Account Provider
For smooth operations of the merchant account, it is important for business owners to look for the right low-risk merchant account provider. While searching for the solution provider, merchants should look at various factors including transaction fees as it can directly impact business profit, especially if you process a high volume of payments each month. Look for a low-risk merchant account provider that offers competitive pricing, which should generally range between 0.99% to 2.99% for transactions without any additional search charges. Also, check how much the provider is charging for monthly fees, gateway fees, charges, and setup costs. Ask what payment methods they are supporting. There is absolutely no harm in asking for a list of supported payment methods for local and international transactions. If you accept payments from customers across the world, make sure that you demand a list of supported currencies and what currency conversion charges will be applicable for transactions in different countries.
