A merchant account is a financial arrangement that enables businesses to accept and process payment card transactions. The account is provided by an acquirer, who deposits funds received from issuers into the account.

To open a merchant account, businesses must apply and go through an evaluation process. The application process considers various factors, including:

• The nature of the products or services offered
• The sales method (e.g., in-person, online, etc.)
• The payment method (e.g., recurring billing, free trial offers, single sale, etc.)
• The business’s processing history
• The perceived risk, which is often determined by analyzing chargeback activity

Some merchants are considered high-risk because they have the potential to be a financial or regulatory liability for the acquirer. These merchants need a specific type of merchant account.

Before receiving a merchant account, merchants are evaluated to determine the level of risk they pose to the acquirer. Several factors are taken into consideration, including:

• The business is new and has little to no payment processing history.
• The merchant’s industry is known to have a high rate of chargebacks or is classified with an MCC that the card brands consider high-risk.
• The merchant uses a subscription billing model or free trial offers.
• The merchant has a high average ticket amount.
• The sales model includes delayed or future delivery of goods.
• The merchandise the merchant sells poses a reputational risk to the acquirer.

To mitigate these risks, acquirers may require additional information or documentation from high-risk merchants, such as financial statements, business plans, or proof of compliance with industry regulations. Acquirers may also impose stricter terms and conditions on high-risk merchants, such as higher fees, stricter fraud controls, or more frequent account monitoring.

A rolling reserve (RR) is a type of collateral that protects both merchants and financial institutions from potential losses due to chargebacks. It serves as a safeguard against chargebacks. If a business operates in an industry with longer delivery times or subscriptions, the rolling reserve will be higher, as determined by the acquiring financial institution. Once the RR is applied to a transaction, the funds will be settled within a specified time frame, as outlined in the merchant’s contract.

The merchant settlement period refers to the time frame between processing a card payment and the funds being cleared into the business’s account. This period is important for merchants to understand, as it affects their cash flow and financial planning.