A merchant account allows businesses to accept electronic payments from customers. Opening one involves applying through a payment processor to check the business is legit and trustworthy to access card systems.
In the application, processors assess risk and set account limits. Understanding these is key to smooth operations and avoiding issues.
There are three main areas where restrictions happen:
The reasons tie back to fraud prevention and reducing risk for processors. Monitoring volumes and averages let weird patterns stand out. This spares merchants from excessive fees or losses.
Sticking to limits and communicating with the processor means smooth acceptance and the best rates. Good providers offer guidance on managing growth needs.
Higher-risk industries often face extra diligence and tighter restrictions given the fraud potential. Key things to know:
The limits make it tougher but let risky businesses access essential services. Working within reasonable bounds and close monitoring helps build good standing and earn privileges over time.
Processing Volumes – Low-risk merchants generally get much higher monthly limits upfront. Volumes can reach millions without issues. High-risk starts are restricted to a few thousand.
Average Ticket Size – Low-risk has more freedom on transaction sizes, sometimes no preset caps, depending on volumes. High-risk tickets see tight monitoring for spikes.
Growth Allowances – Low-risk merchants get flexible periodic increases as the business grows. High-risk growth stays constrained until long track records exist. Jumps can trigger reviews.
Ongoing Maintenance – Low-risk accounts see minimal oversight once approved unless issues emerge. High-risk accounts face frequent monitoring, audits, sporadic holds, and checks to validate activity.
Reserves – Reserves are rarely mandated for low risk beyond initial. High-risk rolling reserves holding significant sales percentages for chargeback buffers are common.
In summary, the core difference stems from needing to actively monitor high-risk merchants while mainly trusting low-risk ones unless problems arise. But responsible high-risk operators can earn those freedoms over time.
For new low-risk e-commerce or retail, monthly limits often initially fall between $25-50k. Brick and mortar may see $100k+ to start. Credit/financial history sets the bar – underwriters want expectations aligned with forecasts.
The advantage is quick volume increases once history with the processor proves strong, valid sales. So, the responsible ramp-up to full potential is enabled.
For example, an online merchant at $30k monthly could likely get approved for $60k after six months of consistent $25k volumes without issues.
Underwriters are optimistic about letting new low-risk businesses scale transactions to their full potential. Close communication and responsible processing allow appropriate limit growth. Reputable processors simplify this for legitimate merchants.
High-risk merchant accounts see tighter restrictions given the higher diligence and fraud potential. Understanding these helps set appropriate expectations.
Standard starting monthly volumes for unproven high-risk accounts usually fall between $3-10k. The processor will want to closely monitor before considering increases.
E-commerce may qualify for $15-25k monthly with excellent credentials, though retail limits often open lower given the higher card-not-present fraud potential.
Transaction size averages also face close monitoring for irregularities, with caps on maximum amounts. Sudden ticket spikes can raise flags for account reviews. Careful limit setting is critical for smooth operations.
Most new high-risk merchants must operate under “rolling reserves,” where sales percentages are reserved to cover refunds or chargebacks. Reserves generally range from 5-15% of monthly volumes.
The key trait of high-risk accounts is tighter control limits on all processing until demonstrating consistent low-risk performance over time. Working closely within assigned restrictions helps build good standing and earn privilege expansion.
Processing Limits refer to maximum monthly or per transaction amounts before violating account terms. To constrain risk, all merchant accounts have preset limits on volumes, order values, etc. Exceeding ceilings may prompt reviews.
Minimum Processing Volumes alternatively create a baseline for the lowest transaction activity allowed monthly. Some higher-risk providers impose minimums because account maintenance costs stay fixed, whether processing little or lots.
For example, a tobacco merchant account may initially cap volumes at $25,000 to monitor sales patterns but carry a $5,000 minimum rule where fees jump if slipping below that mark to cover support costs. There can be good reasons behind minimums.
Low-risk merchants, however, hardly ever face enforced minimum processing targets – it’s understood that sales naturally fluctuate. The focus stays on capping volume peaks instead of mandating floors.
In summary, limits create processing ceilings while minimums set floors. High-risk merchants should know if minimums apply alongside the universally required maximums. Both help manage risk for the merchant and processor.
In addition to lower account volume caps, some high-risk providers may stipulate mandatory minimum monthly processing levels, known as minimum processing volumes or MPVs.
Required MPVs counterbalance to maximum limits – setting a transaction floor rather than a ceiling. Minimum dollar volumes help cover these accounts’ higher diligence costs and risk exposure.
Typical high-risk account MPVs range from $5,000 for less severe industries to $50,000+ for the highest-risk sectors. Factors include chargeback history, sales consistency, and order values.
Fortunately, merchants can work with processors to align realistic minimums with normal business ebbs and flows or slower months. The required levels account for complete payment history across transaction types – from credit cards to mobile.
Maintaining reasonable monthly baseline activity enables specialized businesses to access essential payment services. Alongside any minimums, merchants must also carefully adhere to account maximum limits.
Understanding this full-risk framework upfront heads off hurdles arising down the road.
