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, you’re 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? Let’s 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, here’s 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. Here’s 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. Here’s 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. Here’s 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.
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.
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.
How do I get approved for a high-risk merchant account?
To get approved, you’ll 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.
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.
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.
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 you’re 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!
