High-Risk Merchant Account – Everything You Need to Know

TL;DR: A high-risk merchant account is a service that processors offer so that entities in fraud or chargeback-prone industries can accept card payments. If a business is at a higher risk of fraud or chargebacks or falls into specific sectors, such as subscription eCommerce, it must obtain a high-risk merchant account to accept card payments. High-risk merchant accounts attract more stringent conditionalities than regular merchant accounts and are more expensive to manage.

Running a business in high-risk industries such as travel, gaming, subscription services, or other regulated sectors brings many unique challenges. These include higher-than-average fees, complicated compliance regulations, and elevated chargeback risks. For high-risk merchants, securing reliable payment processing solutions can sometimes feel like navigating a maze.
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A business is categorized as “high risk” based on factors like fraud exposure, transaction volumes, or regulatory complexities. This usually means limited payment processor options, stricter contracts, and higher costs. But, choosing the right high-risk merchant account provider and adopting strategic solutions, can help your business overcome these challenges and position itself for growth.
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Whether launching a new venture or optimizing your current setup, this guide offers actionable insights to help your business succeed.

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What is a High-Risk Merchant Account?

A high-risk merchant account is a service that Payment Service Providers (PSPs) offer so that entities in fraud or chargeback-prone industries can accept card payments. High-risk merchant accounts attract more stringent conditionalities than regular merchant accounts and are more expensive to manage.

Per standard industry practice, payment service providers categorize businesses seeking to open new merchant accounts according to risk exposure. Depending on the perceived risk your business operations present to them, you can be classified as either a high-risk or low-risk merchant.

Sometimes, you could start operating as a low-risk merchant. But if your company becomes exposed to increased fraud and chargeback rates, you could quickly move into a high-risk merchant account category.

As noted earlier, high-risk merchants have fewer options when choosing a payment processor. Additionally, they often pay higher fees to compensate for the perceived risks and abide by more stringent contracts.

While operating a high-risk merchant account is no fun, it could be your only way to continue accepting card payments in certain instances. We’ll discuss how that plays out shortly.

How Are Businesses Classified as High-Risk?

Payment processors use several factors to determine high-risk merchant accounts. And chief among those indicators is high transaction amounts, the benchmark being $20,000 or more per month, average transaction amounts of over $500, or chargeback rates.

To help you understand why your business may be labeled "high-risk,” let’s examine the standard contributing factors.

Any business that ticks yes to any of the factors below could fall into a high-risk business category.

1. Is your monthly sales volume $20,000 or more?
2. Do you accept multiple currencies?
3. Is your average credit card transaction $500 or more?
4. Do you offer recurring billing or subscription payments?
5. Do you have a history of high chargeback volumes?
6. Does your business sell intangible products like software solutions, digital goods, seasonal items, tickets, etc?
7. Do you operate in chargeback-prone regions, i.e., outside the US, EU, CA, JPN, or AU?
8. Do you have a bad credit history?

The red flag of being labeled as a high-risk merchant doesn't automatically make your company less trustworthy than other entities. Instead, that categorization is a subjective expression of your PSP’s concern with the likelihood of disputes your business may face rather than its overall value.

High-Risk Merchant Account: What Verticals are High Risk?

It's worthy of note that these categorizations are often misleading. Operating in verticals historically prone to chargebacks does not mean you will have excessive chargebacks. Yet, knowing if your business falls within verticals that service providers see as high risk is wise.

Below is a non-exhaustive list of industries and businesses categorized as high-risk:

• Adult industry, entertainment, and products
• Auctions
• Bail Bonds
• Card-not present firearms
• CBD (all products, including Delta)
• Coaching, seminars, and online educational services
• Collection agencies
• Continuity/subscription offers
• Credit Repair
• Dating services and online dating
• Debt consolidation
• Debt collection
• Debt repayment (short-term lenders)
• Digital goods
• Doc prep
• E-cigarettes
• E-commerce
• Firearms
• Furniture and electronics
• Gambling
• Health supplements and nutraceuticals
• Marijuana cards, doctors, and products
• Money transmitters, MSBs, licensed lenders
• Multi-level marketing (MLM)
• Non-Fl account loading
• Outbound & subscription direct marketing
• Pawn shops
• Subscription services and companies with recurring payment plans
• Quasi cash
• Timeshare relief and exit services
• Tobacco & nicotine products
• Travel ( airlines, cruise lines, vacation planners, etc.)
• Vape & paraphernalia

With that noted, the following passage will examine the consequences of operating a high-risk merchant account.

Challenges and Costs of Operating a High-Risk Merchant Account

Operating a high-risk merchant account comes with increased fees for card payments, higher rates for payment processing, and more stringent requirements for compliance and reporting.

Higher Processing Fees and Complicated Terms

You might find providers specializing in supporting high-risk merchants, even those other processors reject. Yet, some companies that cater to high-risk merchants have higher fees (processing fees ~1.5%-5%) to offset the elevated risks associated with these accounts. Additionally, chargeback fees for high-risk merchants are typically higher than those for low-risk accounts, often ranging from $20 to $100 per dispute. Contracts may include long-term commitments and limited flexibility, making it crucial to evaluate terms carefully.

Exploitation of Risk Status

Predatory companies take advantage of struggling high-risk merchants by imposing exorbitant fees, hidden costs, or impossible-to-terminate contracts. Always research reviews, request detailed quotes, and consult an attorney to avoid these pitfalls.

Mandatory Account Reserves

Account reserves are predetermined amounts of money held as a protection mechanism for payment processors. It serves as collateral or security for your acquirer to cover any potential costs, risks, or liabilities associated with the transaction or relationship.

Below are the primary account reserve types:

1. Up-front reserve:  This account reserve is set aside at the beginning of a financial transaction or business relationship. It serves to ensure that sufficient funds are available to meet any future financial obligations or potential losses that may arise.
2. Rolling reserve: Here, your payment processor withholds a percentage of funds for a specific period. This percentage is strategically set aside from each transaction and placed into a reserve account, with earlier transactions becoming eligible for release as time passes.
3. Fixed (capped) reserve: A fixed, also called fixed percentage reserve or fixed holdback, involves setting aside a fixed percentage of funds from transactions. This withheld amount remains fixed until you meet certain predetermined conditions. Only then can the funds be released.

When searching for a high-risk merchant account, remember the quality of options available can vary greatly.

Top 10 High-Risk Payment Processors

Choosing the right payment processor is critical for high-risk merchants. Here is a list of the top 10 providers based on experience, reliability, and tailored solutions for high-risk industries.

1. Maverick

Overview: Specializes in custom payment solutions for high-risk industries, offering advanced tools to mitigate fraud and chargebacks.

Key Features:

• Multi-currency processing.
• Chargeback mitigation tools.
• Real-time fraud detection.

Why Choose Maverick: Maverick is known for its flexibility and personalized service tailored to high-risk merchants.

Website: Maverick

2. Nuvei

Overview: A global leader in high-risk payment processing, Nuvei provides seamless integration and compliance support for high-risk merchants.

Key Features:

• Supports over 150 currencies.
• Industry-leading fraud prevention tools.
• Fast and reliable onboarding.

Why Choose Nuvei: Perfect for businesses looking to scale internationally while maintaining compliance.

• Website: Nuvei

3. PaymentCloud

• Overview: Known for its excellent customer service, PaymentCloud offers solutions for various high-risk industries, including CBD and subscription services.

Key Features:

• Chargeback prevention integrations.
• ACH, credit card, and cryptocurrency processing.

Why Choose PaymentCloud: Highly regarded for their customer-centric approach, and an excellent choice for high-risk merchants looking for personalized support and easy integrations.

• Website: PaymentCloud

4. Durango Merchant Services

• Overview: A trusted name for highly regulated industries, providing flexible payment solutions for international merchants.
• Key Features:
  
  • Offshore processing support.
  • Comprehensive fraud and chargeback prevention tools.

Why Choose Durango Merchant Services: Durango is known for its adapability and a reliable partner for businesses looking for offshore processing or tailored payment solutions.

• Website: Durango Merchant Services

5. Soar Payments

• Overview: Offers quick approvals and competitive pricing for high-risk businesses.
• Key Features:
  • Credit card and ACH processing.
  • Advanced reporting and fraud tools.

Why Choose Soar Payments: Known for its streamlined application process and competitive pricing. Soar Payments is a great option for high-risk merchants looking for a quick setup and efficiency.

• Website: Soar Payments

6. Host Merchant Services

• Overview: Provides reliable solutions for high-risk industries like adult entertainment and CBD.
• Key Features:
  • No monthly account fees.
  • Secure ACH and credit card transactions.

Why Choose Host Merchant Services: They stand out for their transparent pricing and dedication to providing high-risk merchants with cost-effective, secure solutions.

• Website: Host Merchant Services

7. HighRiskPay.com

• Overview: Specializes in high-risk merchant accounts with a high approval rate and quick setup process.
• Key Features:
  • Fraud prevention tools.
  • Recurring billing support.

Why Choose HighRiskPay.com: Known for their high approval rate and quick setup process.

• Website: HighRiskPay.com

8. eMerchantBroker (EMB)

• Overview: Tailored solutions for industries like CBD, nutraceuticals, and gaming.
• Key Features:
  • Chargeback dispute management tools.
  • Multiple payment gateway integrations.

Why Choose eMerchantBroker: Specializing in tools for chargeback mantgment their an excellent choice for merchants in dispute-heavy industries.

• Website: eMerchantBroker

9. SMB Global

• Overview: Focused on international and high-risk merchant accounts, ideal for businesses expanding globally.
• Key Features:
  • Multi-currency support.
  • Chargeback monitoring services.

Why Choose SMB Global: Support international businesses with multi-currency options and focus on chargeback prevention.

• Website: SMB Global

10. Inovio

• Overview: Secure and scalable solutions for high-risk online businesses, with a focus on fraud prevention.
• Key Features:
  • Customizable checkout pages.
  • Real-time fraud detection.

Why Choose Inovio: Invio's customizable tools and strong fraud prevention systems make it a reliable partner for high-risk businesses operating online.

• Website: Inovio

How to Choose the Right High-Risk Payment Processor

Always look for a high-risk merchant account payment processor that aligns with your business model. These entities must provide the support and services you need to facilitate secure and efficient payment processing.

Below are vital factors to look for in a high-risk merchant account service provider:

#1: Experience with High-Risk Industries

Ensure that the payment processor has experience working with businesses in high-risk verticals. They must deeply understand your industry's specific challenges and compliance requirements.

#2: Risk Management and Fraud Prevention

Look for a payment processor with robust risk management tools and fraud prevention measures. Look for features like real-time transaction monitoring, chargeback mitigation services, address verification systems, and 3D secure authentication.

#3: Multiple Payment Options

Remaining competitive in today's global marketplace requires that your payment processor supports various payment options. With that, you can quickly accommodate diverse customer preferences like cards, e-wallets, ACH payments, and alternative payment methods.

#4: Competitive Fee Structure

Look at the fine print and understand the payment processor's pricing model and fee structure. As noted earlier, high-risk businesses generally incur higher processing fees due to increased risk factors. Compare rates and fees across different providers to ensure you are getting a competitive deal.

#5: KYC & Regulatory Compliance

High-risk industries often have specific compliance requirements, such as age verification for tobacco or alcohol sales or Know Your Customer regulations. Choose a payment processor that understands and can assist you in meeting these compliance obligations seamlessly.

#6: Excellent Customer Support

Look for a payment processor that offers reliable customer support. They should be responsive and knowledgeable in addressing technical issues, providing assistance with integration, and resolving payment-related inquiries or concerns.

#7: Scalability and Growth  Prospects

Every business can grow. So, look for a payment processor to support your business's growth prospects. They should be able to handle high transaction volumes and provide additional services or features as your business expands.

#8: Reputation and Reviews

Do thorough research on the payment processor's reputation in the industry. Look for reviews and testimonials from other high-risk merchants to gauge their experiences and satisfaction levels.

#9: Integration and Compatibility

Ensure the payment processor integrates smoothly with your existing infrastructure or point-of-sale system. Compatibility and ease of integration can save time and effort during the setup process.

Navigating High-Risk Merchant Accounts with Confidence

Navigating the complexities of high-risk merchant accounts can be daunting. However, with the right tools and knowledge, your business can steer confidently through these challenges. While operating in high-risk comes with the higher fees, stricter contracts, and few payment processor options, this doesn't have to limit your success.

Understanding why your business is classified as high-risk and what factors contribute to its categorization is the first step. The next step is choosing the right payment processors that aligns with your business model and tailored solutions can surely make the difference. For instance, Maverick and Nuvei are known for their specialized report, robust fraud prevention tools, and their commitment to helping high-risk businesses succeed.

Finally, taking proactive measures like implementing chargeback management and fraud prevention strategies to further safeguard your operations and minimize unnecessary costs. Solutions like Chargeflow can help you take charge of disputes, automate recovery efforts, and focus on growing your business.

HIgh-risk doesn't have to mean high failure. With informed decisions and the right partners, your business has the opportunity to thrive in any industry.