High-Risk Merchant Account
At PaymentCloud, we specialize in delivering high-risk payment processing solutions for merchants nationwide.
- Fast approvals
- Vast SIC code acceptance
- Payment options for mobile & retail
- State-of-the-art security features
- Quick processing times
- Dedicated customer support
What Is a High-Risk Merchant Account?
A merchant account is a type of bank account in which transaction funds (from credit and debit card transactions) sit until final settlement, at which point processing fees are deducted and funds are transferred to the merchant’s business checking account. A necessary tool in payment processing, merchant accounts are obtained from a merchant acquiring bank or payment processor. However, these entities aim to issue merchant accounts while minimizing their exposure, making it difficult for certain high-risk businesses to obtain a merchant account through traditional avenues.
Businesses unable to obtain a merchant account from traditional banking institutions must partner with processors that issue high-risk merchant accounts. By facilitating the process of obtaining a high-risk merchant account, we connect our clientele to resources that support their high-risk payment processing needs.
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What Makes a Business High Risk?
Date Updated: 2022-04-08T09:00:00-07:00
There are numerous reasons a business may be considered high risk, including its industry, transaction sizes, fulfillment timeframes, and accepted payment methods.Many contributing factors are so common that you may not even realize your business is considered high risk until you attempt to obtain a merchant account from a traditional banking institution.
That said, the term “high risk” may have a negative connotation, but there’s nothing innately negative about many of the factors contributing to a business’s high-risk categorization. Simply put, tier-one banking institutions still rely on credit policies antiquated by modern methods of doing business, thus favoring old-fashioned business models. Additionally, many of the industries considered high risk are less taboo due to recent cultural shifts and changes to the legal system, but tier-one banking institutions still view these in-demand industries as unacceptable.
At PaymentCloud, we believe that merchants utilizing innovative payment methods or supplying popular goods and services once considered illicit deserve just as much support as businesses adhering to antiquated standards
Below are the most influential factors in determining whether a business is a high risk, many of which, as you’ll see, are not innately negative.
High possiblity for chargebacks
high possibility for fraud
banking reputational risk
high average ticket sales
Recurring Billing & Subscription
Low personal credit score
Industry type
Many businesses are considered high risk based solely on their industry, which is dictated by a business’s merchant category code . Industries may be considered high risk by traditional banking institutions for a variety of reasons. For example, industries subject to heavy government oversight, like the firearms, tobacco, and alcohol industries, are considered high risk due to regulatory issues. Industries in which the average transaction amount skews higher, such as the jewelry industry, are also considered high risk. Even the agriculture, construction, and accounting industries, too, fall into the high-risk category as their seasonal nature may result in inconsistent revenue. With traditional banking institutions considering several everyday industries high risk, you may not even realize your business is in a high-risk industry until attempting to obtain a merchant account.
Note : If any part of a business falls under an MCC considered high risk, financial industries will typically consider the business high risk.
Processing history
Your business’s processing history delivers a diagnostic view of your business’s financial health. By reviewing your history, processors can determine your chargeback ratio, refund ratio, the speed with which you scaled, and other such elements. If you have six months of processing history, institutions can determine the direction in which these factors are heading as well.
Your processing history also reveals the types of payments you most frequently accept (known as card mix), be it internationally or domestically issued cards, debit or credit cards, and other payment methods . Some methods are considered riskier than others. (For example, international cards are considered riskier than domestic cards.) This is a determining factor in a financial institution’s risk assessment of your business.
Chargeback history
A chargeback occurs when a cardholder asks their issuing bank to reverse a charge. In the event of a chargeback, the funds are credited back to your customer’s card and debited from your account. As the merchant, you’re also responsible for paying any associated chargeback fees . If your business has a high number of chargebacks, financial institutions will consider you a high-risk merchant, as chargebacks may be indicative of fraud or poor business practices.
Your chargeback ratio is the percentage of your transactions ending in chargebacks compared to your total transactions. This may be calculated using the number of transactions or the dollar amount of transactions. While tier-one banks typically allow a maximum of a one percent chargeback ratio in any given month, most don’t disclose whether they calculate this ratio based on the transaction amount or dollar amount, leaving you in the dark as to whether you’re nearing the threshold.
Payment processors specializing in high-risk merchant services set their chargeback ratio threshold higher, even up to three percent in some cases. Additionally, these payment processors will often request that you provide them with a chargeback mitigation plan or place you on a probationary period if you cross their chargeback threshold, whereas tier-one banks simply revoke your merchant account.
Personal credit score
When financial institutions assess your business’s risk level, your personal credit score is a factor, as opposed to your business credit score . Even if your business structure is one in which you and your business are separate legal entities, as is the case for limited liability companies , your personal credit score will still be considered. While tier-one banks may reject an application for a merchant account based solely on your personal credit score, regardless of how profitable your business may be, entities issuing high-risk merchant accounts are more willing to consider your credit score alongside other factors.
Note : High-risk merchant account providers may require an applicant with low credit scores to sign a personal guarantee , especially if the business has yet to establish its own credit rating.
Bank statement activity
Like your processing history, your bank statement activity gives a diagnostic view of your business’s financial health. From your business’s bank statement activity, financial institutions can assess if you have enough capital to properly fund your business and if you have maintained a healthy balance to avoid overdrafts. They use this information to determine how much of a credit facility to extend upon approval.
Method of payment acceptance
As stated above, your processing history reveals what payment methods are most frequently accepted at your business. Some payment methods are considered more secure than other payment methods, thus lowering your business’s assessed risk.
There are two methods to accept credit or debit cards: card-present and card-not-present . Fairly self-explanatory, the card-present method refers to any payment paid with a physical card at your business’s location. Meanwhile, card-not-present includes all payments in which the card is not physically present, be it payments made over the phone by way of sharing a card’s information or made online through a virtual terminal or a payment gateway . More vulnerable to fraud and chargebacks, card-not-present payments are considered a higher risk than card-present payments primarily because the merchant cannot confirm the identity of the cardholder.
Card-present payments include payments made:
- By swiping a magnetic stripe card
- By inserting an EMV chip card
- Contactlessly with NFC technology
- In-store with a mobile wallet, such as Apple Pay, Samsung Pay, etc.
Card-not-present payments include payments made:
- Online
- Recurrently with a card on file
- Over the phone
- Through mail order
- In-app or online with a mobile wallet
While allowing customers to purchase goods and services online is a common, if not expected practice, this payment method is technically a card-not-present payment, which raises the level of risk tier-one banks associate with your business. As stated earlier, many factors by which tier-one banks determine a business’s risk have failed to keep up with innovations in financial technology. Meanwhile, entities issuing high-risk merchant accounts are aware that eCommerce options are essential to businesses striving to remain competitive in today’s market.
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High-Risk vs Low-Risk Merchant Account
Above explored the most crucial contributing factors to a business’s high-risk consideration. Determining factors that may lead to a business’s low-risk consideration are as follows:
- Zero to low chargeback ratio
- Operating in a low-risk industry
- Low average ticket size
- The majority of transactions are card present
While the term “low risk” has a positive connotation, a low-risk consideration is neither necessarily positive nor something for which to strive. Likewise, many businesses aim for higher average ticket sizes, as this typically leads to more profits. Businesses shouldn’t attempt to limit or lower ticket sizes to achieve a low-risk consideration. Additionally, many businesses, like jewelry retailers, simply cannot achieve a low average ticket size by the nature of their business.
There are factors that businesses can and should attempt to control, like their chargeback ratio. However, many risk assessment factors are elements ingrained into businesses. That said, it’s best not to view low risk as positive or high risk as negative.
Business Types that Are Considered High Risk
The industry into which your business falls is a pivotal factor in determining your business’s risk level. Below is a list of some industries considered high risk, along with the reasons behind such consideration:
- CBD & Hemp: Requires strict compliance with guidelines and reputation considerations.
- Cigars & Tobacco: Requires strict compliance with guidelines and reputation considerations.
- Credit Repair: Requires strict compliance with guidelines and is considered a bodily harm/health risk.
- Guns & Firearms: Sells a service to populations with poor credit.
- MLM Credit Card Processing: Processes high volume and can be service-only or intangible goods.
- Nutraceuticals & Supplement: Requires strict compliance with guidelines.
- Tech Support: Distributes service-only and intangible products.
- Vape & E-Cig: Requires strict compliance with guidelines and is viewed as a bodily harm/health risk.
Note : The above is not an all-inclusive list, as there are many more industries considered high risk by financial institutions. At PaymentCloud, we support all business types regardless of risk level.
Pros and Cons of a High-Risk Merchant Account
While the term high risk typically has a negative connotation, businesses may be deemed high risk by financial institutions for a variety of reasons that aren’t necessarily negative. Likewise, a high-risk merchant account may sound negative, but they actually provide more protection to merchants and customers than standard merchant accounts.
Benefits of high-risk merchant accounts include:
- A wider range of accepted payment methods (cryptocurrency included)
- Higher chargeback thresholds & refund ratios
- Advanced fraud & chargeback mitigation
- Reduced risk of account termination
- More access to international markets and currencies
- Detailed underwriting customized to your business needs
- Fewer limitations on ticket sizes and sale volume
- More freedom in terms of the products and services you may sell
- Faster volume increases for more scalability
- Dedicated support team who understands your specific business type and industry
The biggest drawback of a high-risk merchant account is that it typically takes longer to obtain than a traditional merchant account due to the in-depth underwriting process. It often takes 24 hours to five days to obtain a high-risk merchant account, but once you are set up you can rest easy knowing you won’t be shut down.
Merchants, especially those best served by a high-risk merchant account, may opt for payment processors offering immediate approval only to find, weeks down the road, that the payment processor has rejected their application and deactivated their account. This leaves the merchant with a business that suddenly cannot process card payments, a hit on their credit, and a mound of receivables they cannot collect. The wait for a high-risk merchant account is well worth it to avoid this nightmare situation.
High-Risk Merchant Account Fees
A common misconception is that high-risk merchant account providers charge higher processing fees. This is simply untrue. At PaymentCloud, we can often beat your existing rates, and place you at a proper processor that can support your business type. We can even analyze your business and card mix to find the pricing model that best services your business operations and saves you money. Meanwhile, entities that approve merchant accounts quickly are often one-size-fits-all when it comes to pricing. This could be detrimental to a business that does a large number of transactions on a regular basis.
Choosing the Best High-Risk Processing
A processor that offers you a merchant account may not specialize in high-risk merchant services. Many providers may issue a high-risk merchant account simply because they want your business, but they’re inexperienced at handling the needs of high-risk businesses. In fact, their credit policies may not even support your industry or SIC code, and just result in a decline shortly thereafter. Additionally, these high-risk merchant accounts often don’t undergo due diligence or proper underwriting, leaving you, as the merchant, more vulnerable than you’d be in the hands of a merchant service provider specializing in high-risk services.
It’s important to confirm that your provider can not only issue a high-risk merchant account, but is adequately equipped to support such. At PaymentCloud, we utilize our broad scope of knowledge and leverage our banking relationships to make your high-risk payment processing as painless as possible.
How to Get a High-Risk Merchant Account
Because financial institutions want to service accounts posing minimal risk, applying for a high-risk merchant account is often an involved process, compared to getting a merchant account for a low-risk business. You’ll likely be required to submit more supporting documentation than businesses that aren’t considered high risk, as is necessary for the more detailed underwriting process.
And failing to include all necessary documents can slow down the approval process. Don’t fret! Our in-depth knowledge of the application process enables us to guide you through the entire process, ensuring you submit all necessary documents so as to avoid any snags. We will do our best to expedite the process upfront.
Based on our vast experience securing our clients’ high-risk merchant accounts, below is some guidance as to what contractual elements you should evaluate in order to find the account provider best suited to meet your business’s needs.
Shop around for price quotes
Businesses best served by high-risk merchant accounts must select from a smaller pool of financial institutions willing to work with them. Some account providers will take advantage of the limited options for high-risk businesses by inflating their processing fees. Advocating for our clientele to receive the most favorable rates available, we ensure their high-risk consideration is not exploited by their account provider.
If you’re already processing payments, we recommend requesting a side-by-side analysis of your current rates and potential rates from any high-risk merchant account provider to which you consider switching. This analysis allows you to quickly determine if you can, in fact, save on rates by making the jump.
Ask about reserves
To mitigate risk, providers occasionally require high-risk merchants to establish a reserve. If a high-risk business’s merchant account is closed or terminated, the processor will cover losses from chargebacks, fines, or other various fees, from the reserve account. It’s important to inquire as to whether your provider requires a reserve. If they do, you should ask if it’s a rolling reserve or a capped reserve, as these different methods of managing a reserve have different business implications worth considering.
A rolling reserve holds a fixed percentage of settled transactions (typically between five to ten percent) for a set length of time (typically between six to 18 months), then releases them to the business’s bank account upon good processing behavior.
A capped reserve holds a fixed percentage of settled transactions (typically between five to 15 percent) until a predetermined cap amount (typically one month of a merchant's monthly processing volume) is reached. The funds remain in the reserve, but nothing is withheld from future settled transactions.
Ask about chargeback threshold & refund ratios
While high-risk merchant account providers allow for more flexibility than financial institutions unwilling to service high-risk businesses, they do have a chargeback and refund ratio threshold that they don’t want their clients to cross. Tier-one banks typically enforce a chargeback ratio threshold of one percent, but entities servicing high-risk businesses may allow for a chargeback ratio as high as three percent. The permissible refund ratio may be as high as ten percent, but varies by processor.
Entities that service high-risk businesses don’t immediately resort to account termination when these thresholds are crossed, instead opting to implement a mitigation plan or enforce a probation period. It’s recommended you inquire about these thresholds and the consequences of crossing them when searching for your high-risk merchant account provider.
Ask about accepting international cards
Because fraud and chargebacks are more likely to occur from international card payments than domestic card payments, accepting international cards is considered high risk. One major benefit of high-risk merchant accounts is that they usually allow you to accept international credit or debit cards, whereas traditional merchant accounts may not.
If you’re interested in expanding your potential customer base by way of accepting international cards, ensure your high-risk merchant account provider enables you to do so.
Review term length
When reviewing the merchant agreement for your high-risk merchant account, it’s important to evaluate not only the term length, but also the conditions of that length. The term length stipulated in merchant agreements for high-risk merchant accounts is often between three to five years. On top of that, the conditions may define automatic renewal clauses, early termination fees, and other specificities to the term length.
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High-Risk Merchant Account Instant Approval
If instant approval for a high-risk merchant account seems too good to be true, that’s because it is. Predatory providers often attract clients through the allure of instant approval, only to lock them into long-term contracts and charge them exorbitant processing fees. Worse, if a provider prematurely allows you to begin processing only for the back-end processor or bank to reject your application, your merchant account will be terminated. The termination of your merchant account can result in your inclusion on the MATCH list, a database of businesses that have had their merchant account terminated. Deemed extremely high risk, businesses on the MATCH list have fewer options through which they can obtain a merchant account.
With our assistance, our clientele avoids these undesirable situations. We only connect clients to providers who thoroughly underwrite high-risk merchant accounts with full due diligence before allowing them to begin processing payments. And while it may not be instant approval, we do assist our clients in every step of the application to expedite the process.
Note : While popular payment service providers—such as Stripe, Square, and PayPal—allow businesses to begin processing payments quickly, they do not offer merchant accounts or service high-risk businesses.
How to Get Approved for High-Risk Payment Processing
To get approved for a high-risk merchant account all you have to do, technically, is fill out an application. But in order to mitigate the increased exposure that comes with issuing high-risk merchant accounts, providers may require a great deal of documents during the application process. In addition to the merchant application, below are the items most frequently requested by those applying for a high-risk merchant account:
Required Documentation
- Government-issued photo identification
- Three months of business bank statements
- Three months of processing statements (if applicable)
- Articles of incorporation (if applicable)
- A voided company check
Underwriting guidelines and requirements
Producing this documentation can feel invasive, but it supports the underwriting process for high-risk merchant accounts. While you may feel vulnerable allowing an outside entity to access these details about your business’s financial health, being completely upfront is advisable. Honesty begins your business relationship with your account provider on the right foot, as well as circumvents delays in the approval process.
It’s also important to remember that the processor is taking on a lot of risk by guaranteeing each transaction. The processor essentially extends microloans with the assumption you, as the merchant, provide the promised goods and services and the cardholder doesn’t dispute the transactions.
How to Protect Your Merchant Account from Suspension
Obtaining a high-risk merchant account can be a complicated process. To avoid repeating that process, you should aim to protect your account from suspension or termination. For those in industries considered high risk due to government regulations, it’s imperative you follow guidelines issued by the government agencies regulating your business. If your business is considered high risk due to eCommerce sales, you should follow proper PCI compliance measures. In addition, below are tactics we can help you employ to protect your high-risk merchant account from suspension or termination.
Monitor chargebacks
We offer simple integrations that can help you monitor chargebacks, allowing you a chance to resolve them. If you worry about crossing your account provider’s chargeback ratio threshold, this is an applicable solution.
Set up chargeback alerts
In addition to monitoring chargebacks, we offer integrations to avoid chargebacks altogether. We can customize your PCI-compliant payment gateway to include an address verification service, CVV matching, and innovative 3D secure technology.
Enable fraud settings on your gateway
While protecting against chargebacks, the above integrations also protect against fraud. To further protect your business from fraud, we can customize your payment gateway through velocity settings, ticket parameters, and limited use outside of the United States. Our experts are skilled at achieving the level of payment gateway protection you want while maintaining ease of use for your customers.
Make sure your checking account is in good standing
It’s important that whatever checking account you designate for your account fees maintains a healthy balance.This remains true even if your account provider requires a reserve, as the reserve is intended to be an insurance policy rather than an account from which fees are paid.
Frequently Asked Questions (FAQs)
In case you have any questions about high-risk merchant accounts that the comprehensive information above failed to answer, below we’ve answered some of the most frequently asked questions about high-risk merchant accounts.
Do I need a high-risk payment gateway?
The term “high-risk payment gateway” is misleading. While the merchant account itself is “high risk,” there is no such thing as a high-risk payment gateway. Instead, it’s that your payment gateway will be attuned to settings that support high-risk payment processing. Fortunately, we offer an abundance of payment gateway settings that enable you to reduce the likelihood of fraud and chargebacks while maximizing profits.
Is Square a high-risk merchant account?
No, Square does not offer high-risk merchant accounts. In fact, Square does not offer any true merchant accounts. As a payment service provider, Square offers an umbrella account through which its users connect to payment networks. Its ease of use comes at the cost of customization. Due to grouping its users in this way, Square cannot offer merchant services customized to the specific needs of businesses.
Additionally, Square does not service high-risk businesses. If you begin processing payments for your high-risk business with Square, they will deactivate your account upon reviewing your application, leaving you without a channel to accept card payments.
What does a high-risk transaction mean?
There are several reasons a transaction might be deemed high risk.If the product is subject to government regulation, such as products sold in the firearms, tobacco, and liquor industries, this may be considered a high-risk transaction.A high ticket amount, such as anything over $5,000, may also be considered a high-risk transaction. Even future delivery live ticket sales, including concert, festival, and airline tickets, are considered high-risk transactions, as the lead time allows for more unpredictability and an increased likelihood of chargebacks.
Can I get a high-risk merchant account through Shopify?
Shopify offers neither high-risk nor traditional merchant accounts as they are a website eCommerce content management system. Since Shopify uses Stripe (who does not accept high risk merchant accounts) as their default processor, Shopify cannot board high risk accounts. However, we can connect you with a customized, PCI-compliant payment gateway and integrate it into Shopify’s back-end.At PaymentCloud, we enable you to utilize the eCommerce platform of your choice with a payment gateway tailored to your business’s needs.
Does Stripe handle high-risk businesses?
As a payment service provider, Stripe does not service high-risk businesses. Having gained popularity in recent years due to their ease of use, payment service providers offer merchants a quick way to begin processing payments. But the inability to truly customize services, processing limitations, and reportedly elusive customer service do not offer businesses the support they need to grow.
Can I accept high-risk PayPal payments?
PayPal does not allow high-risk merchants to conduct business. This is because PayPal is a payment service provider that processes payments through an aggregate merchant account. In terms of high-risk transactions, PayPal employs safeguards to mitigate the risk of its users being scammed. These safeguards include integrations to flag high-risk transactions, which may be subject to a longer processing time before settlement and other practices that ensure its users aren’t the victims of fraudulent activity.
How long does it take to set up a high-risk merchant account?
A high-risk merchant account may be approved in as quickly as 24 hours. Typically, high-risk merchant accounts are approved within one to five business days. The faster you provide the necessary documents, the faster the turnaround on approval.
Does Authorize.net offer high-risk merchant accounts?
Authorize.net is a United States-based payment gateway provider. Through our partnership, we can connect clients to Authorize.net. In short, Authorize.net does not offer high-risk merchant accounts. However, when you partner with us at PaymentCloud, we can get you set up with an Authorize.net gateway even if you are high risk.
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One of the Best High-Risk Payment Processors
At PaymentCloud, we believe businesses that do not conform to the conservative credit policies of tier-one banks deserve just as much payment processing support. Utilizing our broad scope of knowledge and leveraging our banking partnerships, we make the seemingly complicated process of obtaining a high-risk merchant account a breeze.
Our clients receive white-glove treatment from their experienced account representative. This world-class support does not stop upon approval, as your representative handles all inquiries for the life of the account. We understand the importance of accepting payments on a regular basis uninterrupted, and we take it very seriously. If there are any issues that arise, you will have someone to call immediately. Forget about submitting a support ticket and waiting two days for an email response. We believe our clients deserve more, so we deliver more.
What Our Merchants Say
Serious merchants turn to PaymentCloud. With a proud average of 4.8 stars across all review sites, PaymentCloud is excelling in solutions and support. But don’t take our word for it! Here’s what our merchants have to say:
What Our Merchants Say
Debbie
I am a brand new startup in a high risk category so finding a payment processor is nearly impossible!!!!!! I was pleasantly surprised to actually get to a real person [at PaymentCloud] who was willing to help me...I am so grateful to have found PaymentCloud and look forward to growing my business with them!
AMS
Jonathan was there through every step, twist and turn. He got my business the help and assistance it needed quickly, after being dropped by PayPal and Square. This service specializes in high risk businesses and stand behind their promise. Give them a chance!
Alexis H.
The agent who helped me to onboard was attentive and consistent throughout the process... They made sure I knew how to manage my accounts and had them properly set up and in compliance. They turned what could’ve been an intimidating process riddled with errors into a smooth transition for my business.
