Despite the fact that most payment service providers work with a wide range of businesses, there are always a few that they are a little more cautious about. Many of these are in high-risk industries that have a lot of chances of fraud or chargebacks in them.
High-risk merchant account: If you run an online business that has a high risk of chargebacks and want to process credit card transactions, you need a high-risk account to do so. It’s not clear what a high-risk merchant account is and how you know if you need one.
What Constitutes a High-Risk Business?
Being classified as a ‘high-risk’ merchant does not imply that your company is more untrustworthy than your competitors. What this really indicates is that processors are seeing an increase in the number of conflicts in your vertical. Risk is calculated based on the number of chargebacks a processor may anticipate processing each month. It is not indicative of your business’s viability.
To open a high-risk merchant account, you need to find a bank that will accept your business. However, if you want to improve your chances of getting an account, you should ask a good payment service provider for help.
The right payment processor may be hard to find if your business is “high risk.” What makes a business high-risk, though? And how does the risk come about? Throughout this article, we’ll help you better understand all this and more, so that you can be better prepared when it comes to finding the right payment processing partner for your business needs.
What Is a Merchant Account with a High-Risk Profile?
A payment processor will classify a merchant account as high-risk if they feel that your firm is more likely to have chargebacks, fraud, or a significant amount of returns. This might be for a variety of reasons, including the fact that you are a new merchant that has never accepted payments before, or because your industry is deemed high risk and prone to fraud (e.g., controversial items). Merchant accounts that are considered high-risk pay a higher processing fee to compensate for this risk.
High-Risk Results in Increased Fees
Each credit card processing platform is unique, however all high-risk merchant accounts will incur higher rates. Processing costs for all transactions will often be higher, sometimes more than twice those for low-risk merchant accounts. While low-risk businesses also pay a chargeback fee (a cost assessed when a client disputes a transaction directly with their credit card company), high-risk merchants often pay a larger chargeback fee.
A high-risk merchant may be required to sign a contract with extended terms, pay an early termination charge, or pay a monthly or yearly cost. Additionally, high-risk merchant accounts may be subject to a rolling reserve, in which the payment processor retains a percentage of your revenue until it can confirm your transactions were not fraudulent or susceptible to chargeback.
Reasons a Merchant Might Be Classified as High-Risk
There are several reasons why a payment processing company may classify you as high-risk, and some may appear straightforward, while others are more complex. Each provider has a separate set of criteria for high-risk merchant accounts, but this is what you can anticipate to be classified as high-risk:
A high volume of transactions. If a merchant has a large volume of transactions or a high average transaction rate, they may be labelled high-risk. A merchant may be labelled as high-risk if they process more than $20,000 in payments per month or have an average transaction of $500 or more.
International payments are accepted. If a merchant sells to clients in nations where there is a significant danger of fraud, they may be called high-risk (any country except the U.S., Canada, Japan, Australia or the countries in Europe).
New business owner. If a merchant has never accepted payments before or has just a limited history of processing transactions, they may be deemed high-risk merely because they lack a track record.
High-risk business. While a merchant may have a flawless record, they may be deemed high-risk because the industry in which they work is seen to be more prone to fraud, returns, or chargebacks. Subscription-based businesses, for example, are classified high risk since many customers sign up for a trial and then forget to stop their payments. When they check their statements and see the missed transactions, they frequently charge back the amount.
Credit score is low. If the merchant has a poor credit score, he or she may be considered high-risk.
What does it imply when a transaction is considered high-risk?
There are a variety of reasons why a transaction may be considered high risk.
If the product is regulated by the government, such as those sold in the weapons, tobacco, or liquor sectors, the transaction may be deemed high-risk.
A transaction with a high ticket price, such as anything above $5,000, may also be termed high-risk. Even future delivery live ticket purchases, such as concert, festival, and airline tickets, are considered high-risk transactions because to the enhanced unpredictability and probability of chargebacks.
Types of Businesses Considered High-Risk
Traditional financial institutions may see some industries as high risk for a variety of reasons. For example, sectors that are heavily regulated by the government, such as weapons, cigarettes, and alcohol, are deemed high risk owing to regulatory difficulties. Industries with a disproportionately high average transaction value, such as the jewellery business, are likewise deemed high risk. Agriculture, construction, and accounting are all high-risk businesses due to their seasonal nature and potential for uneven earnings. Due to the fact that traditional banking institutions see certain daily businesses as high risk, you may not even realise your firm is in a high-risk area until you apply for a merchant account.
It’s helpful to know ahead of time whether your industry is considered high-risk so you can plan accordingly.
Some verticals have historically proven to be more prone to chargebacks. As a result, the MCCs tied to those verticals are almost universally considered high risk. Examples include:
Casinos, Gambling, or Gaming
Telemarketing, Calling Cards, VoIP
Pharmaceuticals, Online Drug Providers
Adult Entertainment, Dating Services
Travel, Accommodations, Ticketing Agents
Attorneys, Bail Bonding Services
Subscription Services (Magazines, Collectibles, etc.)
Credit Repair/Debt Reduction Counseling
High-Risk Merchant Account vs. Low-Risk Merchant Account
There are a few general characteristics that make a merchant low risk to a payment processor. Low-risk merchants typically have:
- Low transaction volume (less than $20,000 per month)
- Average transactions under $500
- Business in one country that is labeled low risk (the U.S., Canada, Japan, Australia and the countries in Europe)
- One currency
- Very low or zero chargebacks and a low percentage of returns
- Industries labeled low-risk
DO I REQUIRE A RISKY MERCHANT ACCOUNT?
If other payment processors consider your organisation to be high risk, you’ll require a high risk merchant account. Many payment processors distinguish between the two in their Terms and Conditions. Some of the causes are as follows:
- High Chargeback Rates – If your organisation receives an unusually high number of chargebacks or hits a particular threshold, you may be considered high risk.
- Fraud Risks – Certain firms or industries have experienced an upsurge in fraud. Know your industry and protect your company from many types of internet frauds and theft.
- Recurring Payments – Do you provide constant monthly payments or do you charge automatically following a trial offer? These sorts of billing systems have their own merchant accounts.
How Do I Obtain a Merchant Account with a High-Risk Rating?
When you apply for a merchant account, you must submit business and tax documentation. Following the processing of your application, your payment provider will determine if you are a high-risk or low-risk merchant and will adjust their plan appropriately.
Certain payment processors are better suited for high-risk clients, so it’s a good idea to shop around and discover the supplier that best fits your business’s needs.
Prior to selecting a payment processor, you should carefully examine the contract, since each bank and payment processing platform is unique and has unique restrictions for merchants they identify as high risk.
Choosing the Most Reliable High-Risk Processing
A processor who provides you a merchant account may not be experienced in high-risk merchant services. Many providers will offer a high-risk merchant account solely because they want your business, but they are untrained in dealing with the demands of high-risk firms. In fact, their credit policies may not even support your sector or SIC code, resulting in a quick decline. Furthermore, these high-risk merchant accounts are frequently not subjected to due diligence or adequate underwriting, leaving you as the merchant more susceptible than you would be in the hands of a merchant service provider specialising in high-risk services.
It is critical to ensure that your supplier is not only capable of issuing a high-risk merchant account, but is also appropriately qualified to support one. Paypound leverages our extensive expertise and banking contacts to make high-risk payment processing as simple as possible.
Instant Approval for High-Risk Merchant Accounts
If you believe that instant approval for a high-risk merchant account is too good to be true, you are correct. Predatory suppliers frequently entice consumers with the promise of instant approval just to trap them into lengthy contracts and demand high processing costs. Worse, if a provider enables you to begin processing early just to have your application rejected by the back-end processor or bank, your merchant account will be cancelled. If your merchant account is cancelled, you may be included to the MATCH list, which is a database of firms that have had their merchant account terminated. As firms on the MATCH list are considered highly high risk, they have fewer choices for obtaining a merchant account.
Our clients avoid these unwanted circumstances with our aid. We link customers with suppliers who rigorously vet high-risk merchant accounts before authorising them to begin accepting payments. And, while approval is not guaranteed immediately, we help our customers throughout the application procedure to accelerate the process.
Government-issued photo identification
Three months of business bank statements
Three months of processing statements (if applicable)
Articles of incorporation (if applicable)
A voided company check
Underwriting guidelines and rules
Producing this documentation can be invasive, but it helps with the process of getting a high-risk merchant account. While it may make you feel a little uncomfortable giving someone else access to this information about your business’s financial health, it’s best to be completely honest with them. Honesty starts your business relationship with your account provider off on the right foot, and it also speeds up the approval process.
It’s also important to keep in mind that the processor is taking on a lot of risk by putting a guarantee on each deal.
How long does it take to set up a high-risk merchant account?
A high-risk merchant account may be approved in as quickly as 48 hours. Typically, high-risk merchant accounts are approved within one to five business days. The faster you provide the necessary documents, the faster the turnaround on approval.