High-Risk Merchant Accounts in Canada: A Complete Guide
High-risk Canadian businesses encounter difficulties in obtaining approval for merchant accounts. Acquiring banks impose strict requirements, making the process challenging. Some businesses get lucky and find a good solution after applying to many providers. Many struggle to find any provider willing to say yes. These businesses, despite being legal, face challenges to survival.
At QuadraPay, we understand this challenge. This is why our content team has written this cheat sheet. This industry guide explores everything about high-risk merchant accounts in Canada. We are confident this guide will help you to be in a much better position. You will understand ways to remove the obstacles that may come in your quest to get a merchant account. You can also listen to the audio version of this cheat sheet on this page and our social media handles. Let’s begin.
What is a high-risk merchant account in Canada?
A high-risk merchant account in Canada is a specialized bank account for businesses classified as high-risk by banks. It allows them to accept credit card payments. These accounts function like regular merchant accounts but come with key differences. Underwriting is stricter, rates are higher, and proactive monitoring is required. Certain restrictions may apply based on the industry and risk level.
What makes a Canadian merchant high-risk for credit card processors?
Banking institutions have their own style of operations. They decide which industries they want to work with and which industries they do not wish to work with. Every bank has its own risk appetite. It is a fact that certain industries are prohibited from card processing solutions. Merchants operating in these industries cannot get payment processing services. However, there are many industries that are legal, but due to certain factors, merchants are still considered high-risk. In Canada, specialized high-risk processors primarily cater to these merchants.
A few of the key reasons that make a Canadian business high risk include the reputation of the industry, the risk of chargebacks, and regulatory challenges. Now let’s explore a variety of such reasons in detail.
- Industry: Certain industries are globally classified as high-risk. These merchants can get card processing solutions after strict evaluation. Some may also have to undergo a mandatory high-risk registration. Every high-risk industry has some challenges associated with credit and reputational risk. The list below includes some examples.
- Antiques & Collectibles businesses sell items that can attract frequent disputes. This is because of the pricing, conditions, and authenticity of the items. We all understand that even if an item is in perfect condition, it will never be as new as if it came straight from the factory. Customers may feel they paid more than the product was worth, increasing the risk of chargebacks. This industry is also infamous because of fraudulent buyers. Sometimes fraudsters use stolen credit cards to purchase high-value antique items. All this makes Canadian antiques and collectible shops high risk for acquiring banks.
- Apparel and clothing shops. This may look like a very secure industry, but in reality, it involves a lot of risk for the acquirers. In recent years, the apparel industry has started seeing high rates of returns and exchanges. Sometimes this may be because of the sizes or colour issue. Eventually it contributes to the financial instability of the merchant. Any boutique that sees the seasonal spike in sales can create fluctuating cash flow. This can lead to higher credit risk for the acquiring bank when these customers start asking for refunds.
- Cannabis Support Businesses. The biggest challenge faced by cannabis businesses is their legal status. We all know it’s complicated. In some places such businesses are legal with restrictions, while in other places they are prohibited. The challenge for such merchants increases when they face problems in getting a merchant account. Processors think that cannabis merchants can face regulatory challenges. This can result in inconsistent banking relations because of federal or provincial laws. Some acquiring banks may also think that the product itself can be a reason for high chargebacks. This is due to the customer’s perception that the product did not provide the expected satisfaction after consumption.
- CBD Oil & CBD Products. Every Canadian CBD entrepreneur is aware of the legal uncertainties surrounding this industry. The industry may be legal but is highly regulated, and restrictions do apply. The complex structure makes it difficult for processors to support CBD oil merchants.
- Gambling. Similar to industries like CBD, cannabis gambling is another industry that is high risk because of the legal landscapes. Along with that, gambling merchants generally deal with large sums of money, which can make them a potential target of fraud. Gambling is regulated in most jurisdictions. Payment service providers that support this industry must know the underwriting procedures for the merchant’s home location and the location where they expect traffic from.
- High Chargeback: If a merchant gets above the normal chargebacks, then that merchant becomes a high-risk merchant. It is important for businesses to ensure that the chargeback ratio always stays under 1%. They can take several steps to keep chargebacks below the threshold.
- High Ticket Size: Certain industries have more than average ticket size. Their monthly sales volume is multiple times that of merchants from low-risk industries. Some of the examples include gaming, gambling, export/import, B2B, jewellery, coaching, seminars, crypto trading, forex, and betting advice merchants. All these industries are naturally high risk because of the ticket size.
Key features of the best high-risk credit card processors in Canada
It is important for Canadian businesses to consider several factors when selecting a high-risk merchant processor. We have listed some here:
High-Risk PSP: Not every payment processor works with high-risk merchants. Some high-risk merchants in select industries can only be onboarded by specialized payment processors. In the payment industry, these processors are also known as high-risk processors.
Experience: It is also important to ensure that the payment processor has enough experience assisting merchants from the region. A seasoned high-risk payment facilitator operating in Canada or the USA may be a viable option.
Multiple Payment Methods: A provider that offers the ability to accept a variety of payment methods should be the number one choice for merchants. By adding multiple payment methods to the checkout page, merchants increase the chances of transaction success.
Affordability: Pricing should be reasonable. As an informed merchant, you should be aware that in the payment industry, pricing comes in different types: fixed pricing and interchange pricing. A little bit of research on these pricing models can help merchants negotiate better rates.
Efficient Settlement Cycle: Most high-risk payment processors in Canada offer a fast settlement cycle. This helps ensure better business operations with a healthy cash flow.
Easy Integration: Integration must be straightforward. The payment processor should provide ready-to-use plugins for popular content management platforms in Canada, like Shopify, Wix, BigCommerce, etc. The payment processor should also provide detailed API information for implementing custom integrations.
Intelligent Merchant Panel: The merchant panel should be easy to use. It should have functions for exporting records and uploading chargeback representation documents.
KYC Requirements for High-Risk Merchant Accounts in Canada
In order to get a high-risk credit card processing account for your business in Canada, you must submit certain KYC documents. Let’s look at some of the documents that you will have to send to the provider:
Business registration certificate, AOA, and MOA to confirm the business entity. Merchants with any of the following business structures can apply for an account: sole proprietorship, partnership, limited partnership (LP), corporation, limited liability partnership (LLP), not-for-profit organization, and trust.
For identification purposes, you can send a copy of your national ID, passport, or driver’s license; this should be a photo ID.
To confirm the company’s physical address, utility bills are required. This can be a telephone, gas, or electricity bill.
To further assess your business’s financial stability, three recent months of business bank account statements are required. This financial documentation provides insights into your business’s cash flow and financial health.
Your previous credit card processing statements play a positive role in getting your account approved. High-risk acquiring banks prefer to work with businesses that already have experience accepting credit card payments.
Application Process for High-Risk Payment Processing Account in Canada
The application process for a high-risk merchant account in Canada is simple. It starts with research, where you identify providers that support your industry and then apply to all of these providers.
However, this process can be time-consuming. With QuadraPay, you can save a lot of time as we have already established contacts with well-known high-risk processors. Although we are not directly involved in setting up your agreements and processing payments for you, we just work as an introducer reseller. You negotiate directly with the processors. If you choose our recommended solution, then we may make small commissions. You can consider it as a reward that we get for all the legwork we do to get you approved.
When you contact us, we will check your website to confirm if our acquiring partners may review your site. If we consider it suitable, we will inform you about additional required documents.
Our high-risk payment processor partner will check all of your details, including your website and KYC documents. Once approved, our partner processor will send you a contract.
After signing the agreement, you can proceed with integration and start accepting real-time transactions on your website or mobile applications.
FAQ: High-Risk Credit Card Processing in Canada
What role does QuadraPay play as a high-risk merchant account provider in Canada?
QuadraPay is your high-risk merchant account reseller that wishes to provide assistance to struggling merchants. We connect you with right payment service providers that may review and potentially onboard you as a merchant. Our services can potentially help you save money and time.
What Strategies Can Canadian Merchants Implement To Reduce The Risk Of Merchant Account Shutdown?
Merchants can implement several strategies to reduce the risk of account shutdown. We suggest you should work with a reliable high-risk merchant account processor. This way you know that your provider is stable. Every high-risk merchant should use some kind of order verification process to reduce fraudulent transactions. This can be easily done if you have a good customer care team.
What Can Be The Future Of High-Risk Payment Processing In Canada?
In the coming years, the Canadian high-risk merchant processing industry may see better acceptance of cryptocurrencies. Merchants will be more comfortable in paying high-risk merchant registration fees.
How Long Does It Take To Get Approval For A High-Risk Payment Gateway In Canada?
Many factors influence the approval timeframe, but in most cases approvals are done within a week. It’s important to apply strategically rather than sending applications to all banks and payment service providers, as this approach may delay approvals and create an unfavourable impression.
How Do Regulations Differ Across Canadian Provinces, and What Can Merchants Do About It?
Regulations can vary across Canadian provinces. For instance in Ontario, online gaming merchants must follow the regulations of iGaming Ontario. Quebec has strict language requirements for e-commerce websites. British Columbia has specific rules for CBD and cannabis-related businesses. Alberta has unique regulations for payday loan companies. When searching for a high-risk merchant account, consider processors familiar with your specific region. Each area may have unique challenges and opportunities for high-risk businesses.
It’s important to note that while federal regulations apply across Canada, provincial laws can significantly impact how high-risk businesses operate. For example, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) oversees anti-money laundering efforts nationwide, but provincial securities commissions may have additional requirements for forex and cryptocurrency businesses.
Industry Resources:
https://www.globaldata.com/store/report/canada-cards-and-payments-market-analysis/
