Running a high-risk business comes with its own set of challenges, and one of the biggest hurdles is securing reliable payment processing. If you’ve ever been denied a merchant account or hit with high processing fees, youโre not alone. Many industries are labeled as “high-risk” by banks and payment processors due to factors like chargebacks, fraud risks, and regulatory concerns.
So, how does high-risk merchant processing work, and what can you do to secure the best payment solution for your business? Letโs take a look at all the variables.
What Is High-Risk Merchant Processing?
High-risk merchant processing refers to payment processing services specifically designed for businesses that traditional banks and payment providers consider risky. These businesses face a higher likelihood of chargebacks, fraud, or regulatory scrutiny, making it difficult to secure a standard merchant account.
Instead, high-risk businesses must work with specialized high-risk merchant processors who are willing to assume greater risk in exchange for higher fees and more stringent account requirements.
What Types of Businesses Are Considered High-Risk?
Certain industries are more likely to be classified as high-risk due to their transaction nature, high refund rates, or legal and regulatory challenges. Common high-risk businesses include:
1. E-Commerce & Subscription-Based Services
- Online businesses with recurring billing models.
- High chargeback rates from customers disputing automatic renewals.
2. Adult Entertainment & Dating Websites
- Content-related businesses often face fraud and regulatory issues.
- Chargebacks are common due to customer privacy concerns.
3. Online Gambling & Gaming
- Legal restrictions in various regions.
- High risk of fraud and chargeback disputes.
4. CBD, Cannabis, & Vape Products
- Legal gray areas in different states.
- Difficulty in securing payment processors due to federal regulations.
5. Travel Agencies & Ticketing Services
- Large transactions that lead to significant chargeback risks.
- Customers frequently cancel trips or dispute charges.
6. Luxury Goods & High-Ticket Sales
- Expensive items attract fraudsters using stolen payment information.
- High refund and return rates.
7. Financial Services (Debt Collection, Credit Repair, etc.)
- Regulatory scrutiny and customer complaints.
- High chargeback rates from dissatisfied clients.
Why Do Banks and Processors Consider Some Businesses High-Risk?
Payment processors evaluate risk based on a few key factors:
- Chargeback Ratios: Businesses with frequent chargebacks (above 1% of transactions) are deemed risky.
- Fraud Risk: Industries prone to fraudulent transactions require stricter security measures.
- Subscription-Based Models: Recurring payments increase disputes and refund requests.
- Legal & Regulatory Concerns: Businesses operating in gray areas (like CBD or online gambling) face extra scrutiny.
- Large Transaction Amounts: High-ticket sales increase financial risk for processors in the event of fraud.
How to Get Approved for a High-Risk Merchant Account
If you operate in a high-risk industry, hereโs how to improve your chances of securing a merchant account:
1. Choose a High-Risk Merchant Services Provider
Look for a payment processor that specializes in high-risk accounts. These providers understand your industry and offer customized solutions.
2. Prepare Your Documentation
Most high-risk merchant accounts require the following:
- Business license and incorporation details.
- Processing history
- Bank statements.
- Tax identification number.
3. Reduce Chargeback Risks
- Clearly communicate refund policies on your website.
- Use fraud prevention tools like address verification (AVS) and CVV verification.
- Provide excellent customer service to minimize disputes.
4. Be Transparent About Your Business Model
- Processors need to understand your products, services, and customer base.
- Hiding key details can lead to account termination.
Costs and Fees Associated With High-Risk Merchant Processing
High-risk businesses often face higher fees due to the increased financial risk. Hereโs what you can expect:
- Higher Processing Fees: Rates typically range from 3% to 10% per transaction.
- Rolling Reserves: A percentage of your funds (usually 5% to 10%) may be held in reserve to cover potential chargebacks.
- Chargeback Fees: Each disputed transaction can cost $20 to $100.
- Monthly Fees: High-risk accounts often have higher maintenance fees.
Managing Chargebacks and Fraud Prevention
Chargebacks are one of the biggest issues for high-risk businesses. Hereโs how to minimize them:
1. Implement Strong Fraud Detection Tools
- Use AI-powered fraud detection to identify suspicious transactions.
- Require two-factor authentication for online purchases.
2. Monitor Transactions in Real-Time
- Flag high-value purchases for manual review.
- Watch for multiple failed payment attempts from the same user.
3. Educate Your Customers
- Send clear payment confirmation emails.
- Provide easy-to-access customer support.
Payment Processing Solutions for High-Risk Businesses
1. High-Risk Payment Gateways
- Secure gateways tailored for high-risk transactions.
- Includes fraud prevention tools and chargeback alerts.
2. Alternative Payment Methods
- Accepting e-wallets and ACH payments can reduce chargeback risks.
- Multi-currency support for international transactions.
3. POS and Virtual Terminal Solutions
- Secure in-person and remote payment options.
- Tokenization for safer customer data handling.
Compliance and Security Best Practices
Staying compliant helps protect your business and maintain a positive reputation.
1. Follow PCI DSS Compliance
- Ensure your payment system encrypts customer data.
- Regularly update security protocols.
2. Keep Up With Industry Regulations
- Stay informed about changing laws affecting your industry.
- Work with a legal advisor to maintain compliance.
3. Maintain a Strong Processing History
- Avoid excessive chargebacks and disputes.
- Build a reliable relationship with your payment provider.
Finding the Right High-Risk Merchant Processor
Not all processors are created equal. Hereโs what to look for:
- Industry Experience: Choose a provider familiar with your business type.
- Transparent Pricing: Avoid processors with hidden fees or excessive charges.
- Customer Support: A responsive support team can make a big difference.
FAQs: High-Risk Merchant Processing
What is a high-risk merchant account?
A high-risk merchant account is a payment processing account designed for businesses that traditional banks and payment providers consider risky. These businesses typically face higher chargeback rates, fraud risks, or regulatory challenges.ย ย
Why is my business considered high-risk?
Your business may be classified as high-risk if it operates in an industry prone to chargebacks, fraud, or legal and regulatory issues. Common high-risk industries include e-commerce, CBD, adult entertainment, online gambling, and travel services.ย ย
What fees should I expect with a high-risk merchant account?
High-risk merchant accounts usually come with higher processing fees, typically ranging from 3% to 10% per transaction. Additional costs may include chargeback fees, rolling reserves (5%-10% of funds held in reserve), and monthly service fees.ย ย
How do I get approved for a high-risk merchant account?
To get approved, youโll need to work with a processor that specializes in high-risk businesses. Be prepared to provide business documents such as a business license, bank statements, processing history, and tax ID. A strong application with proper documentation increases your chances of approval.ย ย
What is a rolling reserve, and why do processors require it?
A rolling reserve is a percentage of your transaction funds held by the processor for a set period to cover potential chargebacks and fraud. It protects the processor from financial losses and is commonly required for high-risk businesses.ย ย
Can I reduce my chargeback rate?
Yes, to minimize chargebacks, clearly communicate refund policies, use fraud prevention tools like AVS (Address Verification Service) and CVV verification, and provide strong customer support. A lower chargeback rate improves your standing with processors.ย ย
Can I use my high-risk merchant account for online and in-store sales?
Yes, many high-risk processors offer solutions that allow businesses to process payments both online and in physical locations. However, some providers may require separate accounts for different transaction methods.
Contact a High-Risk Payment Processor
Securing a high-risk merchant account might seem overwhelming, but with the right approach, you can find a reliable payment solution that works for your business. If youโre ready to explore high-risk merchant processing options, contact Dynamic Merchant Solutions today. We want to help you grow your business without payment processing worries!
