If your business has been labeled “high-risk” by payment processors, you may have encountered challenges when trying to open a merchant account. High-risk businesses face higher fees, stricter terms, and more stringent compliance requirements due to the nature of their industry or transaction history. However, with the right knowledge and the proper steps, high-risk merchants can still secure the payment processing solutions they need.
In this post, we’ll dive into what makes a business high-risk, the unique challenges high-risk merchants face, and how to find the best high-risk merchant account provider for your business.
What is a High-Risk Merchant Account?
A high-risk merchant account is a type of payment processing account tailored for businesses that are considered riskier than others. The “high-risk” label is typically applied to businesses operating in industries that experience high levels of chargebacks, fraud, or financial instability.
Because of this elevated risk, payment processors charge higher fees, require stricter agreements, and often impose specific conditions to manage the potential exposure to financial loss.
Why Are Some Businesses Considered High-Risk?
Businesses can be classified as high-risk for a variety of reasons. Below are some of the most common factors:
1. Industry Type
Certain industries are naturally more prone to chargebacks or fraud, which automatically places them in the high-risk category. Examples include:
- Adult entertainment
- Travel and hospitality
- E-cigarettes and vape products
- CBD and hemp-related businesses
- Online gaming and gambling
- Subscription-based services
- Debt collection agencies
2. High Chargeback Rates
A chargeback occurs when a customer disputes a transaction and requests a refund through their credit card provider. Industries with high chargeback rates are seen as risky because chargebacks can lead to financial losses for both the payment processor and the business. If your business experiences frequent chargebacks, your account may be classified as high-risk.
3. New or Unstable Business
Startups, businesses with a short operational history, or companies with inconsistent revenue can be deemed high-risk. This is because processors are unsure whether your business can sustain itself over time or if you have the resources to handle financial disputes.
4. International Transactions
Businesses that operate internationally, especially in countries with a history of fraud or unstable financial systems, are often flagged as high-risk. Cross-border transactions are more complicated to manage and come with greater fraud risks, which drives up the risk level for processors.
5. Poor Credit History
If the business owner or the business itself has a history of bad credit or financial instability, payment processors may view the business as risky. This could result in higher fees or more restrictions when setting up a merchant account.
The Challenges of High-Risk Merchant Accounts
While having a high-risk merchant account allows businesses to process payments, there are several challenges that come with the territory:
1. Higher Processing Fees
High-risk businesses are charged higher fees than standard merchants. These higher rates help payment processors offset the financial risks associated with processing transactions for your business. You may see:
- Higher transaction fees (up to 4% or more per transaction)
- Higher chargeback fees
- Monthly or annual service fees
2. Rolling Reserves
To protect themselves against chargebacks or financial losses, some payment processors impose rolling reserves. A rolling reserve is a portion of your sales (typically 5%–10%) that is withheld for a set period (usually 90–180 days) to cover potential chargebacks or disputes.
3. Strict Compliance Requirements
High-risk businesses are often subject to more rigorous compliance requirements, such as maintaining PCI compliance to protect customer data and using advanced fraud prevention tools. Failure to meet these requirements could lead to penalties or even account termination.
4. Difficulty in Securing a Merchant Account
Because of the elevated risk, many traditional banks and payment processors may refuse to work with high-risk businesses. This can limit your options and make it more difficult to find a suitable provider.
Finding the Right High-Risk Merchant Account Provider
While high-risk merchants face unique challenges, there are specialized providers that cater to businesses like yours. Here’s what you should consider when choosing a high-risk merchant account provider:
1. Experience in High-Risk Industries
Work with a provider that has experience in your industry. Specialized providers understand the unique needs and risks of high-risk businesses and can offer tailored solutions to meet your requirements.
2. Transparent Pricing
High-risk accounts often come with higher fees, but transparency is key. Look for providers that offer clear and straightforward pricing structures, with no hidden fees or unnecessary costs. Avoid providers that use vague pricing models that make it hard to calculate your true processing costs.
3. Chargeback Protection
Since chargebacks are a major concern for high-risk merchants, it’s crucial to choose a provider that offers robust chargeback protection. This might include tools like:
- Chargeback alerts
- Fraud detection software
- Address Verification System (AVS) and Card Verification Value (CVV) checks
- Chargeback dispute assistance
4. Flexible Contract Terms
Some providers lock businesses into long-term contracts with steep cancellation fees. Look for a high-risk merchant account provider that offers flexible terms, so you can switch providers if needed without facing penalties.
5. Support for Global Transactions
If you operate internationally, choose a provider that supports multi-currency processing, cross-border transactions, and has experience dealing with international payment regulations and fraud prevention measures.
6. Customer Support
Your business may face additional hurdles when it comes to payment processing, so reliable 24/7 customer support is essential. Make sure your provider offers prompt assistance to help resolve any issues quickly.
Benefits of a High-Risk Merchant Account
Despite the challenges, having a high-risk merchant account also comes with key benefits for businesses:
- Ability to Process Payments: The most important benefit is that your business can accept credit card payments. Without a merchant account, your ability to process transactions would be limited, and you could lose out on a significant portion of your revenue.
- Advanced Fraud Protection: High-risk providers often offer specialized fraud prevention tools and support that can help protect your business from chargebacks and fraudulent transactions.
- Increased Revenue Opportunities: Being able to accept credit card payments—especially in high-risk industries like e-commerce or travel—opens up your business to more customers, increasing your potential revenue.
High-risk merchant accounts provide businesses in challenging industries the opportunity to process payments while mitigating risks. Although these accounts come with higher fees and stricter terms, finding the right provider can make a significant difference in managing your costs and ensuring your business runs smoothly.
By understanding your business's risk level and choosing a provider that offers transparent pricing, chargeback protection, and flexible contract terms, you can navigate the high-risk space confidently and keep your business thriving.
If you’re looking for a high-risk merchant account provider, contact InfoMerchant today for a free consultation. We specialize in helping high-risk businesses secure reliable, cost-effective payment solutions tailored to their unique needs.
