High-Risk Credit Card Processing and Merchant Accounts

What is a high-risk merchant account?

A high-risk merchant account is a business bank account that allows businesses deemed “risky” by banks and credit card processors to accept credit cards and other payment forms. 

Payment processing providers typically include merchant accounts with their services. The merchant account acts as a bridge between the customer’s credit account and the business’s checking account and helps facilitate the transfer of funds. However, if you’re a high-risk business, the merchant account provider must take extra measures to ensure your business is covered financially — and not every merchant account provider is willing to take those extra measures.  

High-risk businesses find it more challenging to obtain payment processing support from traditional banks and financial institutions. Therefore, they must seek out high-risk merchant account providers that can accommodate them.

High-risk vs. low-risk merchants

Before applying for credit card processing services and a merchant account, you must understand if you’re a high-risk or low-risk merchant. Here’s how these business categories differ.

What makes a business high-risk? 

Merchant account providers may have unique criteria for pinpointing high-risk businesses. However, several factors are more universal and will likely result in your business being considered high-risk. 

Excessive chargebacks

For example, excessive chargebacks are a red flag that can cause payment processors to consider your business high-risk. Chargebacks occur when customers request a refund to their credit card after making a purchase. They occur in many businesses. However, frequent chargebacks can affect your standing with your merchant account provider adversely. 

When customers make credit card purchases, the money sits in a merchant account before it’s transferred to your business. If a customer requests a refund because of an issue with the product or service, they will be reimbursed from that account. However, if your business incurs frequent chargebacks and refund requests monthly, the merchant account provider must take additional precautions. It may mandate a rolling reserve on your merchant account to help cover transaction issues and fraud.

Additional high-risk factors

Other factors that contribute to a high-risk label can include the following:

• Being a new business: New businesses haven’t established business credit and can’t present payment processors and financial institutions with extensive transaction histories or high credit scores, so they may be considered high-risk. A business owner’s low credit score and lack of experience can also be risk factors.
• Not enough transactions: A merchant account provider must calculate your chargeback ratio. If you don’t complete enough monthly transactions to achieve an acceptable average score, your business could be placed in the high-risk category.
• Transaction and sales volume: Credit card transactions that average over $500 and high sales volumes ($20,000 or more in monthly sales) can also be considered high-risk factors. 
• Industry type: Specific industries, such as travel, gambling and adult sites, are known for excessive chargebacks due to a high number of cancellations. For this reason, they’re immediately classified as high-risk.
• Refunds and fraud: Like chargebacks, fraud incidents and refund requests raise your risk of being labeled high-risk. 
• Location: Certain countries are known for high fraud rates, so if your business is based in one of these areas, it may be considered high-risk. 

What makes a business low risk? 

A low-risk merchant typically has low revenue, few transactions and low rates of chargebacks and returns. Additional characteristics include the following:

• Credit card transactions average $500 or less.
• Transactions add up to less than $20,000 monthly.
• The industry is considered low risk, such as essential goods, clothing, household and baby items.
• The chargeback ratio is low — less than 0.9 percent of total transactions.
• Business is completed in low-risk areas, such as the United States, Europe, Japan, Canada and Australia.
• The rate of returns is low.

What types of businesses need high-risk merchant accounts?

Here’s an at-a-glance reference chart of businesses that likely need high-risk merchant accounts: 

Pros and cons of high-risk merchant accounts

Pros

Obtaining a high-risk merchant account can bring the following benefits:

• Long-term growth opportunities
• Increased profits
• Acceptance of multiple currencies
• Robust chargeback protection
• Reserve account for surprise chargebacks
• The ability to process credit card transactions — even with bad credit or financial setbacks

Cons

However, when you accept a high-risk merchant account, you’ll have to deal with some downsides, including the following:

• Higher credit card processing fees and chargeback fees
• Sales volume caps
• Potentially mandatory reserve account, which can be as high as 50 percent of your monthly volume
• Rolling reserve that can be held up to 180 days after account closure
• Longer and more stringent application processes

What to consider when seeking a high-risk merchant account

Research is crucial when selecting a high-risk merchant account provider. Prioritize the following features to ensure your business and customers are properly supported: 

• Timely support: Problematic transactions can cause issues that snowball quickly. Choose a provider that offers proactive support and has your back when a problem arises.
• Custom payment options: Your provider should be able to meet your complex business needs by enabling custom payment forms that allow for multiple payment scenarios.
• No hidden fees: Ensure you’re aware of all fees upfront. The monthly cost of high-risk credit card processing and merchant accounts should be easily found on the provider’s website. If not, a quick phone call or chat should be able to answer all your questions.
• Up-to-date technology: Your payment partner should be current on payment trends and offer an open application programming interface. Onboarding should be seamless and take days, not weeks. Avoid high-risk payment processors with outdated websites, excessive downtime and subpar tech knowledge.
• Anti-fraud tools: Since high-risk accounts are more susceptible to fraud, seek a merchant account with enhanced security measures, including chargeback prevention and multifactor authentication.
• Market leadership: Choosing a high-risk merchant account can take time, including time for onboarding and customization. Selecting a reputable company protects your time and financial investments.
• Industry and country support: If your business has expanded internationally or spans multiple industries, you need a payment processor with unique capabilities. Ensure your provider can handle your business’s needs.

Best vendors for high-risk credit card processing and merchant accounts

Many of the best credit card processors can accommodate businesses in high-risk industries or that have other risk factors. However, research is crucial to ensure your processing partner meets your specific needs. 

The following platforms are excellent options for businesses that need high-risk credit card processing and merchant account services:

• Merchant One: Merchant One offers small businesses a robust credit card processing suite without requiring them to jump through numerous hurdles. This payment processor accepts 98 percent of applicants, including high-risk merchants. It also doesn’t have a predetermined list of specifications small businesses must meet to use its services. Instead, it reviews each application on a case-by-case basis. Our in-depth Merchant One review details the company’s low monthly fee and relatively low processing rates. 
• NA Bancard: NA Bancard is an excellent option for high-risk merchants. It serves businesses of all types and sizes in any industry and high-risk vertical. It also provides free POS hardware and invoicing, customer management and employee management tools all businesses will find helpful. Read our comprehensive NA Bancard review to learn about its flexible terms and risk-free month-to-month service agreements.
• Stax: Some businesses are deemed high-risk because of a high monthly sales volume. In contrast, Stax’s payment structure isn’t based on sales processing numbers. It charges a monthly subscription fee that varies by volume, along with a small flat fee. Our Stax review explains more about why this processor is an ideal partner for high-risk merchants operating high-revenue businesses. 
• Square: A lack of business experience can cause your business to be labeled high-risk. However, Square doesn’t penalize new businesses. It offers new companies a great credit card processing deal with no monthly fee, ready-to-use equipment and a support team committed to ensuring you get the most out of its services. Our detailed Square review explains the company’s straightforward application process and easy setup. 

High-risk merchants have numerous options

Being marked a high-risk merchant isn’t the end of the world. Many successful businesses have inherent risk factors that make them less appealing to some credit card processing companies and merchant account providers. However, excellent payment processing partners are available. It’s crucial to be aware of your status and risk factors so you can find a partner that can handle your business’s situation and needs. 

Matt D’Angelo contributed to this article.