What Is a High-Risk Merchant Account?

When looking for a merchant services provider, some businesses might find themselves classified as high-risk. This can lead to unique challenges in securing payment processing solutions, as well as ongoing costs. Below, we discuss the details of high-risk merchant accounts, including the factors contributing to their classification, and the differences between high-risk and regular merchant accounts.

What Is a High-Risk Merchant Account?

A high-risk merchant account is a specialized payment processing solution designed to accommodate businesses deemed riskier by financial institutions. These businesses, often operating in industries with higher chargeback rates or regulatory complexities, face challenges in securing traditional merchant accounts. High-risk accounts are tailored to meet the specific needs of these businesses, providing a way to accept credit card payments despite the associated risks.

Factors Determining If a Merchant Is High-risk

Several factors contribute to a business being labeled high-risk:

Industry Type

Certain industries, such as adult entertainment, travel, and nutraceuticals, are inherently riskier due to regulatory scrutiny or higher chargeback potential.

Credit History

A business owner’s personal credit history can impact the risk assessment, especially for startups or small businesses.

Chargeback History

A history of chargebacks signals risk, as it may indicate dissatisfaction among customers or potential fraud.

Business Model

Subscription-based services, multi-level marketing, or businesses with a history of high-volume transactions might be classified as high-risk.

Examples of High-risk Industries

High-risk industries are characterized by factors such as elevated chargeback rates, regulatory scrutiny, and increased potential for fraud. Here are seven examples of high-risk industries:

Online Gambling and Casinos

The online gambling industry, including casinos and sports betting platforms, is often classified as high-risk due to the potential for fraud, chargebacks, and regulatory complexities.

Adult Entertainment

Businesses involved in adult content, such as adult websites, dating platforms, and explicit content providers, are deemed high-risk due to the sensitive nature of their offerings.

Pharmaceuticals and Nutraceuticals

Companies dealing with pharmaceuticals, dietary supplements, and other health-related products face regulatory scrutiny and potential legal issues, contributing to their high-risk classification.

Travel and Hospitality

The travel industry, including airlines, hotels, and travel agencies, is considered high-risk due to the prevalence of chargebacks, cancellations, and the unpredictable nature of the business.

Multi-level Marketing (MLM)

MLM businesses, characterized by a tiered commission structure and recruitment-based revenue, often face skepticism and high chargeback rates, leading to their classification as high-risk.

Tech Support and E-commerce

Online tech support services and certain e-commerce businesses can be deemed high-risk due to the potential for fraud, disputes, and the intangible nature of the offered services.

Debt Collection Agencies

Debt collection agencies, tasked with recovering overdue debts, are considered high-risk due to the sensitive nature of their operations and the potential for legal complications.

It’s important to note that the classification of an industry as high-risk can vary among payment processors and financial institutions. Additionally, businesses operating in these industries may have the opportunity to secure payment processing solutions by partnering with providers specializing in high-risk merchant processing, such as with Dynamic Merchant Solutions.

How Does High-Risk Credit Card Processing Differ from Regular Accounts?

High-risk merchant accounts differ significantly from regular accounts, presenting distinct challenges and considerations for businesses operating in industries deemed riskier by financial institutions. Here’s a closer look at the key differences:

Higher Payment Processing Fees

One of the notable differences is the higher cost associated with high-risk merchant accounts. To offset the increased risk, high risk payment processors often impose higher processing fees on transactions for businesses in high-risk industries. This includes both fixed fees and a percentage of each transaction.

Stricter Approval Process

Obtaining approval for a high-risk merchant account involves a more extensive and thorough application process compared to regular accounts. Providers scrutinize various aspects of the business, such as financial stability, credit history, and industry risk factors, leading to a more prolonged approval timeline.

Higher Chargeback Fees

High-risk businesses are more susceptible to chargebacks, whether due to customer dissatisfaction, fraud, or other issues. Consequently, payment processors typically charge higher fees for managing and processing chargebacks for high-risk merchant accounts.

Cash Reserve Requirements

To mitigate the risk associated with chargebacks and potential business instability, high-risk merchant accounts may be subject to cash reserve requirements. This involves holding a percentage of each transaction in reserve for a specified period, providing a buffer against chargebacks and other financial uncertainties.

Volume Caps

High-risk merchant accounts may come with volume caps, limiting the total transaction volume processed by the business within a specific timeframe. These caps are imposed to manage the risk exposure for the payment processor.

Additional Technical Requirements

High-risk industries often necessitate additional technical measures to enhance security and compliance. This can include implementing advanced fraud prevention tools, encryption protocols, and other security measures to protect both the business and its customers.

What to Do If You Need Merchant Services For a High Risk Business

Research Extensively

Explore payment processors specializing in high-risk accounts, understanding their terms, fees, and reputation within your industry.

Build a Strong Case

Present your business as low-risk as possible by highlighting positive aspects such as a solid business plan, efficient customer service, and fraud prevention measures.

Negotiate Terms

Negotiate terms with potential providers, aiming for favorable rates and conditions that suit your business needs.

Implement Fraud Prevention Measures

Strengthen your business’s fraud prevention measures to minimize chargebacks and boost your appeal to payment processors.

Tips for Finding a High-risk Merchant Account

Specialized Providers

Look for providers specializing in high-risk industries, as they are more likely to understand the unique challenges your business faces.

Transparent Pricing

Opt for providers with transparent pricing structures, ensuring you understand all fees associated with the high-risk account.

Customer Support

Choose a provider with responsive customer support to address any issues promptly.

Customized Solutions

Seek providers offering tailored solutions for your specific industry, understanding the nuances of high-risk businesses.

Find a High Risk Credit Card Processing Company

Understanding the various factors regarding high-risk merchant accounts is important for any business facing a high-risk profile. You’ll be able to make informed decisions, identify suitable payment processors, and implement strategies to mitigate risk.

Even high-risk businesses can secure reliable payment processing solutions, fostering growth and sustainability in their respective industries. Contact Dynamic Merchant Solutions today to review your company’s details to see if you can be set up with credit card processing for high risk businesses today.



What Our Clients Say
About Dynamic Merchant Solution.

We’re a leading merchant services company in Los Angeles