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Updated Jul 01, 2024

High-Risk Credit Card Processing and Merchant Accounts

Learn all about high-risk credit card processing and merchant accounts, including the pros and cons, and which businesses need one.

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Written By: Julie ThompsonBusiness Strategy Insider and Senior Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.
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Some businesses may fall into specific industry categories or have high chargeback or refund rates. Unbeknownst to many of these companies, merchant account providers and credit card processors may consider them “high risk” and deny their applications. 

If your company has been denied a merchant account from a traditional bank, you likely have to navigate the world of high-risk credit card processing and merchant account providers — a daunting proposition. Fortunately, reputable payment processors who support high-risk businesses do exist. We’ll explain more about why businesses may need a high-risk merchant account and share tips for choosing a high-risk merchant account provider. 

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.

Did You Know?Did you know
According to Accertify, chargeback volume has increased by 51 percent and is a threat that should be on every entrepreneur's radar. Chargebacks can occur due to payment fraud or if cardholders didn't receive their items as expected.

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.
FYIDid you know
High-risk factors also affect businesses seeking loans. For example, if you're in a high-risk industry, have bad credit, defaulted on a previous loan or filed for bankruptcy, you may be required to provide business collateral to alleviate the lender's risk.

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: 

  • 1-800 chat sites
  • Adult content
  • Airlines or airplane charters
  • Annual contracts
  • Antiques
  • Attorney referral services
  • Auctions
  • Automotive brokers
  • Bankruptcy attorneys
  • Banned or illegal goods and services
  • Brokerages
  • “Business opportunities”
  • Car parts
  • Casinos, gambling or gaming
  • Chain letters
  • Check cashing services
  • Cigarette, e-cigarette, vape or cannabidiol businesses
  • Coins, collectible currency or autographed collectibles
  • Collection agencies and other debt collection services
  • Coupons or reward-points programs
  • Credit protection, counseling or debt repair services
  • Dating services
  • Direct response marketers
  • Drug paraphernalia
  • E-books (copyrighted material)
  • Electronics
  • Event ticket brokers
  • Extended warranty companies
  • Fantasy sports websites
  • Finance brokers, financial consulting or loan modification services
  • Furniture sellers
  • Indirect financial consulting
  • Game codes and hacks
  • Get-rich-quickbooks and programs
  • Health and wellness products
  • High average ticket sales
  • How-to websites
  • Horoscopes, astrology or psychic services
  • Hype products or services
  • Hypnotists or self-hypnosis services
  • International shipping, cargo or import/export services
  • Internet service providers and hosting services
  • Internet Protocol television services
  • Life coaches
  • Lingerie sales
  • Lotteries or sweepstakes
  • Magazine sales
  • Mail or telephone order sales
  • Medical care programs
  • Membership-based companies
  • Money transfer services
  • Merchants on the Terminated Merchant File or MATCH list
  • Merchants with poor credit
  • Modeling or talent agencies
  • Multicurrency sales
  • Multilevel marketing 
  • Music, movie or software downloads or uploads
  • Nightclubs or cabaret bars
  • Nutraceuticals
  • Offshore corporation establishment services
  • Pawn shops
  • Phone-locking services
  • Prepaid calling cards
  • Prepaid debit cards
  • Real estate
  • Replica handbags, watches, wallets and sunglasses
  • Self-defense, pepper spray or mace
  • SEO services
  • Smartphones (sales, resales and spare parts)
  • Social networking sites
  • Sports forecasting or betting
  • Subacquiring/merchant aggregation
  • Subscription-based billing
  • Technical support and web development
  • Timeshares or timeshare advertising
  • Tour operators
  • Travel clubs, services or agencies
  • Vacation planners
  • Vacation rentals
  • Vitamin and supplement sales 
  • Voice-over-internet-protocol services
  • Weapons of any kind, including parts

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
TipTip
You can potentially lower credit card processing fees by taking measures to reduce risk, such as swiping cards instead of manually entering them, using an address verification service and always entering the billing ZIP code and security code when prompted.

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.
FYIDid you know
Many high-risk merchant account providers try to lock their clients into long-term contracts. Be wary of stringent terms and choose a company with flexible contracts, such as month-to-month contracts.

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. 

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Written By: Julie ThompsonBusiness Strategy Insider and Senior Writer
Julie Thompson has spent nearly 20 years helping businesses with their marketing, sales and other operations. This has included developing brand standards, creating unique ways to market new products, leading media outreach and spearheading email campaigns. Her hands-on experience further includes Salesforce administration, database management, lead generation and more. At Business News Daily, Thompson covers a variety of customer relationship topics, such as contact management and text message marketing, while also providing guidance on financial matters like high-risk credit card processing and payroll reports. In recent years, Thompson has focused on sharing her expertise with small business owners through easy-to-read guides on topics ranging from SaaS technology to finance trends to HR matters, alongside marketing and branding advice. She has also contributed to Kiva, an organization that helps fund small businesses in struggling countries.
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