High-Risk Merchant Account: How to Secure an Approval

A silhouette of a man carrying a briefcase steps on a low-risk cube to get a high-risk merchant account

TABLE OF CONTENTS

How a High-Risk Merchant Account Works
High-Risk vs Low-Risk Merchant Accounts
Reasons Your Business May Be Deemed High-Risk
Pros and Cons of High-Risk Payment Processing
Higher Risk May Mean Higher Fees
What Should You Do if You’re High-Risk and Need Processing?
How to Find the Best High-Risk Merchant Account Provider
Top 5 High-Risk Merchant Account Providers of 2024
How PaymentCloud Can Help
FAQs

A high-risk merchant account lets businesses labeled as high-risk accept credit and debit cards. After processing fees, funds are transferred to the merchant’s bank account within 24-48 hours.

Many merchant service providers avoid offering merchant accounts and other payment processing services to businesses that are known to be high-risk. Unfortunately, this leaves high-risk business owners without many processing options, significantly reducing their ability to generate revenue and expand their operations. However, high-risk providers help businesses access the processing support they need through financial institutions that have more relaxed guidelines.

Understanding the payment processing landscape is essential if your business is in the high-risk category. And that’s why we’re here!

How a High-Risk Merchant Account Works

Several merchant service providers impose strict restrictions on industries and products, exposing businesses to frozen funds, account suspensions, and even termination.

A computer with an alert on the screen, signaling why some businesses need a high-risk merchant account.

A termination can even land you on the MATCH list—an electronic database of high-risk merchants managed by Mastercard—further complicating the already difficult task of finding a payment processor. However, a merchant services provider with expertise in servicing high-risk industries can issue accounts so merchants can effectively run their business without fearing termination.

A high-risk merchant account is specifically designed to support payment processing for high-risk businesses. Each payment processor has specific criteria known as a credit policy, which dictates what types of business industries they’re allowed to support. The main reason these credit policies differ is the processor’s ability to conduct thorough underwriting, due diligence, and support from their sponsor bank.

The processors with more underwriting capabilities can take on greater risk and, in turn, are allowed to board more industry types that carry the high-risk classification.

High-risk merchant accounts can be connected to payment gateways and other platforms, just like standard accounts. No matter why a business is considered high-risk, these accounts give them access to the powerful payment processing tools they’ve been missing.

High-Risk vs Low-Risk Merchant Accounts

As mentioned, standard (or low-risk) and high-risk credit card processing offer similar services—both facilitate payment processing for a business. However, high-risk merchant accounts may come with slightly higher fees, underwriting processes, and reserve requirements or other financial assurances to mitigate risk. On the bright side, high-risk accounts typically offer the most advanced security features available to lower the potential for fraud and impose far fewer restrictions regarding business operations.

Reasons Your Business May Be Deemed High-Risk

There are various factors involved in a high-risk business being categorized as such. Below, let’s explore some of the reasons your business might receive this classification:

Excessive chargebacks and/or refunds
Fraud-prone industry
High-risk transactions
Lack of business history

Reputational risk
Poor credit score
Processing recurring payments

Business Types Considered High-Risk

Unfortunately, various sectors are considered high-risk industries, making it challenging for merchants operating within these industries to find a merchant account provider willing to process their high-risk transactions. The list of the most common industries with high-risk merchant category codes includes, but is not limited to:

Adult
Bail Bonds
CBD
Subscription-based
Firearms

Gambling
Insurance
Tech Support
Tobacco & Vape

Pros and Cons of High-Risk Payment Processing

If your business requires high-risk payment processing, you may wonder if there are any specific upsides or downsides. Spoiler: There are. Below, we’ll explore the pros and cons of high-risk payment processing!

The Pros

Advanced Security Measures: High-risk payment processors utilize the most advanced security measures to prevent fraud and chargebacks.
Higher Chargeback Thresholds: High-risk payment processors understand their clientele has a greater chance of receiving chargeback claims, so they often allow for higher chargeback rates.
Reduced Risk of Account Termination: Many payment solution providers are known for suddenly banning industries or merchants, leaving these businesses without payment processing capabilities. As high-risk payment processing providers specialize in servicing risky industries and understand their unique challenges, you’re unlikely to suffer sudden account terminations.
Freedom to Sell High-Risk Products: If you sell high-risk products, you probably don’t want a merchant account provider monitoring your business activities. Fortunately, high-risk providers allow more freedom and leniency regarding your business’s operations.
Tailor-Made Solutions and Support: These providers offer tailor-made solutions, making it simpler to customize your payment operations.

The Cons

Longer Approval Timeframes: Providers partnering with high-risk businesses may have a higher risk appetite but still need to reduce their exposure to significant liabilities. Therefore, the underwriting process for payment processing services often takes longer.
Higher Fees: As high-risk businesses are more prone to losses, providers may charge more to process their transactions to account for the increased financial exposure.
Reserves: A high-risk provider may issue a merchant account stipulating that the business owner must also fund a reserve account. In this event, a percentage of the merchant’s sales is set aside as a safety net to cover any losses on the account. This can be challenging if you own a business with small margins or minimal cash flow.

Higher Risk May Mean Higher Fees

All businesses pay various fees to process transactions, but fees associated with high-risk merchant accounts can be higher. As a high-risk merchant, your business will incur additional costs to help mitigate your risk. Some fees remain constant, regardless of your business’s risk profile, while others will vary depending on your risk level. Below, let’s explore both fixed fees and fees that fluctuate due to risk level:

Fixed Fees

The following fees remain constant, regardless of your risk profile:

Refund Fees: Costs associated with refunding customers for returned items typically remain constant, as this is not a chargeback.
Security Fees: Fees for security and fraud prevention tools will usually remain constant regardless of your risk profile. Even low-risk merchants require these tools!
Termination Fees: If you sign a long-term processing contract, your business may be charged a termination fee if you decide to cancel your processing agreement before the end of the contract.
PCI Compliance Fees: Many payment processors charge merchants for the costs of maintaining PCI compliance. As all merchants must remain PCI compliant regardless of risk level, many merchant account providers charge the same fees across the board.

Fluctuating Fees

The following fees increase as your risk level increases:

Chargeback Fees: Chargeback fees may increase if your business experiences excessive chargebacks or if your business operates in a high-risk industry.
Transaction Rates: Processors usually charge higher transaction fees to businesses with a higher risk level to cover potential losses.
Monthly Fees: In some cases, high-risk merchants must pay high monthly service charges to help account providers mitigate risk.
Rolling Reserve Requirements: As previously mentioned, the amount your business must retain in a rolling reserve will increase as your risk increases. Merchant account providers require additional cash assurances in case your business faces excessive chargeback costs.

What Should You Do if You’re High-Risk and Need Processing?

If your business is high-risk, it will struggle to attain merchant services from traditional financial institutions, such as banks or credit unions. While some high-risk businesses turn to payment service providers (PSPs)—such as PayPal, Square, and Stripe—to process high-risk transactions, this avenue is not advisable. While PSPs offer auto approvals, they often cancel business accounts without warning for many reasons.

Working with a high-risk merchant service provider will help you avoid nasty surprises and protect your business from fraudulent transactions. They will not shut your business down due to product offerings, transaction amounts, or exceeding risk thresholds. As high-risk payment processors understand the risks associated with your industry, they will work closely with you to prevent chargebacks and other potential problems.

Start by applying for a high-risk merchant account as soon as possible. As the underwriting process takes longer when you’re a high-risk business, it’s important to start applying immediately to avoid delaying your access to payment processing!

How to Find the Best High-Risk Merchant Account Provider

Two people on a laptop are cheering because they have finally found the best high-risk merchant account provider.

If you want to unlock low rates, dependable processing services, and excellent customer support, you need to find the best high-risk merchant account provider for your specific business needs.

With so many payment processors offering services to US businesses, selecting a provider suitable for your needs can be challenging. Let’s explore some tips for narrowing down a shortlist of top payment processing candidates:

Check the provider’s website and online reputation

Your first port of call should always be the payment processor’s website. With so much competition in the industry, processors are increasingly transparent about their services, pricing, restrictions, and more. Check if a payment processor is willing to work with high-risk industries or has any restrictions in specific sectors.

Next, it’s time to find out what other merchants think of the payment processor you’re assessing. The Better Business Bureau (BBB) and Consumer Affairs are excellent sources of customer feedback—these consumer watchdog groups host reviews and report information regarding official complaints.

Read the terms and conditions and the application carefully

Always inspect the terms and conditions and application carefully—don’t assume all relevant information is provided in the marketing material. Below, let’s explore some factors you should consider when reading the terms and conditions and the application:

Processing fees
Chargeback fees
Chargeback thresholds
Contract length
Early termination fee
Hardware restrictions
Excluded industries
Excluded activities or payment types
Any other potential restrictions on your payment processing abilities

If you have any questions about a processor’s rates, terms, or restrictions, contact its team directly. Always ask for clarification in writing, as it will provide clear evidence about a processor’s commitments if any disputes arise in the future.

Top 5 High-Risk Merchant Account Providers of 2024

When choosing a high-risk merchant account provider, consider a few key factors. Look at how long the company has been in business, its reviews (via Trustpilot), and whether it can handle your type of business. See if the provider has strong customer support with accessible sales reps and responsive service staff.

Most importantly, ensure the provider works with a bank that suits your payment needs. To do this, find out which sponsor banks your preferred provider works with. Then, make sure that these sponsor banks work with high-risk businesses, specifically in your industry. Keep in mind that the banks’ credit policies, which lay out which business types they serve, are subject to change. Check to see if their credit policies are up-to-date and that the banks in question are able to work with you. If you don’t find out this information, you could risk signing up with a provider that pairs you with an incompatible bank. This can lead to the freezing of your funds. But rest assured. If you ask the right questions, you can find a provider that understands how best to match you.

For beginners, some top providers to consider are PaymentCloud, Durango Merchant Services, Soar Payments, Payline Data, and Host Merchant Services. These companies are typically experienced in high-risk industries and have a proven track record.

How PaymentCloud Can Help

If your business is ready to set up a high-risk merchant account, start now by reaching out to PaymentCloud! We specialize in connecting high-risk merchants with merchant services, including merchant accounts, payment gateways, and virtual terminals. If you’re looking for a reliable solution backed by extensive experience in supporting businesses like yours, we’re only a click away!

FAQs

Can I get instantly approved for a high-risk merchant account?

Unfortunately, instant approval for high-risk merchant accounts is not available. As with all merchant accounts, including low-risk ones, the provider must perform due diligence to prevent fraud, unnecessary risk, and other potential issues. In most cases, it can take anywhere from 2–7 business days on average for approval.

How do payment service providers like Square, Stripe, or PayPal deal with high-risk merchants?

Square, Stripe, and PayPal are popular choices with high-risk merchants because they don’t have the same underwriting process as merchant accounts, meaning they’re easier to access for risky industries. However, while setting up an account with a payment service provider is simple, bypassing merchant accounts has many downsides.

Payment service providers usually charge flat rates, which are simpler but often more expensive than traditional merchant accounts. PayPal, Square, and Stripe often close accounts without warning and provide limited customer support. Without a dedicated merchant account, you can’t expect the same level of support.

Lastly, many popular high-risk industries—such as the adult industry and vaping industry—are entirely banned from PayPal and other similar payment service providers (PSPs). A PSP might suspend your processing rights if they discover the nature of your business, even after you’ve signed up for an account.

Will I need a high-risk payment gateway?

If you operate in a high-risk industry, you will likely need some form of a high-risk payment gateway to accept credit card payments online. However, payment gateways don’t classify themselves as high-risk, even if they work with high-risk providers. This is because the merchant account provider assumes much of the risk, not the payment gateway provider.

However, choosing a payment gateway provider with built-in tools, such as two-factor authentication and other security measures, will help you avoid scams if you operate in a high-risk industry. Authorize.net and NMI are two of the most popular providers offering payment gateways that seamlessly integrate with high-risk merchant accounts from third parties.

Is there such a thing as a high-risk virtual terminal?

Yes. Your business can attach a virtual terminal to a high-risk merchant account, making it a high-risk virtual terminal. Virtual terminals are necessary for processing card-not-present (CNP) transactions, including payments taken over the phone, through email, and via mail orders. While virtual terminals provide extra payment flexibility for businesses, they also carry increased risks.

If you’re in a high-risk industry, it’s crucial to have extra authentication to confirm the cardholder’s identity. Not doing so may expose your business to chargebacks and other payment issues!

Can I get a high-risk merchant account if I use an eCommerce platform like WooCommerce or Shopify?

Yes. Fortunately, many popular eCommerce platforms—including WooCommerce, Shopify, and BigCommerce—allow for high-risk merchant account integration. You might not use in-house payment services like Shopify Payments, but you can integrate third-party gateways. Platforms like Shopify and WooCommerce ban certain products, so ensure you follow each provider’s rules.

Will I need a high-risk merchant account if I have bad credit?

Unfortunately, a bad personal or business credit score may prevent access to low-risk merchant accounts. Merchant services providers may view your financial position as untenable with their risk approach and choose to deny your application. However, bad credit merchant accounts are available to individuals and businesses with poor credit, so you can still access payment processing without an excellent credit file.