The Ultimate Guide to High-Risk Merchants

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    In the payment processing industry, institutions classify businesses prone to fraudulent transactions and chargebacks as high-risk merchants. Credit card processing for high-risk merchants comes with several risks. After all, the processor involved takes on the consequences following fraudulent transactions, so banks avoid these cases altogether.

    However, this isn’t to say that risky merchants can’t process payments. The popularization of third-party front- and back-end processing paved the way for ​​high-risk payment processors. While banks avoid high-risk merchants, third-party brands act as intermediaries between clients and commercial banks to make high-risk merchant processing possible.


    What Is A High-Risk Merchant Account?

    Merchant accounts enable business owners to accept card and mobile payments. Most commercial banks perform the front- and back-end processing themselves, allowing them to offer more affordable rates and reliable services. Unfortunately, they also have stringent application procedures.

    Businesses with short tenure, bad credit, low annual turnovers, or high chargeback rates might have trouble qualifying for a regular merchant account. Commercial banks avoid taking on new clients at risk of financial failure.

    If you’re having trouble opening a regular merchant account, opt for high-risk merchant services. These are specialized third-party payment processing solutions designed specifically for business owners and enterprises dubbed as high-risk. 

    Third-party processors have less intensive screening procedures, allowing them to cater to a broader range of businesses — from startups to financial service providers. However, keep track of their rates. These institutions offset the risk they take on by adding a few extra pennies to their fees.

    Low-Risk Merchant Accounts vs High-Risk Merchant Accounts

    Are you stuck between low-risk and high-risk merchant service providers? While the specific conditions vary from processor to processor, you can get a good grasp of what to expect by comparing their account’s overall pros and cons.

    Low-Risk MerchantHigh-Risk Merchant
    Average Monthly Sales Volume< $20,000> $20,000
    Currencies AcceptedLocal currencyMultiple overseas currencies
    Recurring or Subscription PaymentsNoYes
    International ProcessingNoYes
    Processing FeesLowerHigher

    What Businesses Are Considered High Risk?

    Businesses would do well to assess their risk levels before submitting their applications to payment processors. Save yourself from unnecessary rejections. While processors follow varying due diligence procedures, you can get a good idea of your associated risk levels based on the following factors:

    • Chargeback Rates: High chargeback rates indicate an increased risk of fraudulent transactions, so commercial processors avoid businesses that receive multiple return requests.
    • Sales Volume: Not all commercial banks are willing to process hundreds to thousands of transactions, especially if you run a relatively new business.
    • Transaction Type Frequency: Card-not-present transactions are more likely to lead to chargeback requests, so processors would rather avoid them altogether.
    • Order Fulfillment Schedules: A lengthy, time-consuming order fulfillment process gives the customer leeway to send chargeback requests.
    • Pricing Model: Subscription-based pricing models are typically riskier than one-time payments because they put you at risk of late, delinquent payers.
    • Business Tenure: Companies with minimal business experience might not qualify for a commercial merchant account right from the get-go.
    • Credit History: Poor credit histories imply a high risk of financial failure, especially if your business does not have a positive cash flow yet. 
    • Customer Base: Commercial banks avoid international transactions because they have limited jurisdiction and investigation capabilities when tracing fraudulent cases overseas.

    Industries Considered High Risk

    Payment processors define high-risk industries differently based on their risk tolerance. However, you can expect institutions to perform more intensive checking and due diligence if you come from the following industries:

    Adult EntertainmentDocument PreparationJewelrySoftware/Mobile Applications
    Air & Water FiltrationDownloadable SoftwareLegal ServicesStorage Facility
    AirlineseBooksMagazine SubscriptionsTech Support
    Antiques/CollectibleseCommerceMarriage ServicesTelecommunications
    Apparel SalesElectronicsMoving CompanyTobacco/Vaping
    Auto Transport, Parts & AccessoriesFirearms & AmmoMultilevel MarketingTravel Services
    Business Owners with Bad CreditForeign Exchange MarketNutraceuticals/Herbal SupplementsWarranties
    Beer, Wine & Liquor SalesFinancial ServicesOnline RetailSEO/Web Design/Development
    Cannabidiol/Medical MarijuanaFurniturePawn ShopsInsurance
    Computer HardwareGambling/GamingPet Shops & Supply StoresDiscount Buying Services
    Credit RepairDebt ConsolidationHealth Clubs/Weight LossPrivate Airlines/Charter Jets

    ​​Types of High-Risk Merchant Account Pricing Schemes

    After requesting a couple of quotes for high-risk merchant processing services, you might notice two recurring pricing models: interchange-plus pricing and tiered pricing. 

    Do not blindly go with the lower rates. Keep in mind that these percentages have different effects on your revenue depending on your sales volume and profit margins, among other factors. Weigh the pros and cons carefully.

    Tiered Pricing

    Tiered pricing models follow a screening process that assigns merchants to rate buckets. These “buckets” or “tiers” typically include qualified, mid-qualified, and non-qualified. Generally, your provider increases and decreases your rates based on the riskiness of your transaction types.

    This pricing model typically appeals to newcomers for its simplicity. The predictable rates, fixed charges, and straightforward pricing plan make it easies to compute monthly profit margins.

    Interchange-Plus Pricing

    An interchange-plus pricing plan charges the same wholesale interchange rates as credit card associations, plus a fixed processing fee. For instance, your processor can add a $0.10 fee on top of Mastercard’s 2.6% rates.

    While interchange-plus pricing models appear more complex on paper, they offer more leverage. You can utilize this pricing model based on your sales volume, profit margins, and product costs to minimize the processing fee cuts on your revenue.

    Other Fees Involved With High-Risk Merchant Accounts

    A common mistake that new merchants commit is focusing solely on processing fees. Bear in mind that high-risk payment processing comes with several other charges, and overlooking them might lead to miscalculations in your profit margins.

    • Chargeback Fees: Merchants have to shoulder the fees involved when returning processed payments to their customers.
    • Rolling Reserve: Processors withhold a percentage of your daily transactions for security, then release it at a later scheduled date.
    • Monthly Fees: Watch out for payment processors that charge a fixed monthly fee for their merchant services.

    Applying For A High-Risk Merchant Account

    Contrary to popular belief, applying for a high-risk merchant account is relatively straightforward and accessible. Most third-party processors perform less intensive risk assessments. As long as you prepare the necessary documents and promptly undergo each step of the process, you can start processing payments in less than a week.

    High-Risk Merchant Account Requirements

    To prevent going back and forth with your processor about missing requirements, prepare the following documents beforehand:

    • Six months payment processing history 
    • Bank recommendation
    • Business license number 
    • Copy of executive’s identification cards
    • Executive’s proof of residence
    • Incorporation certificate
    • License-issuing organization
    • Local directors and shareholders utility bills
    • Organizational structure chart
    • Passport copy
    • Shareholders’ certificate

    High-Risk Merchant Account Application Process

    Apart from the flexible guidelines and due diligence, the application process for high-risk and regular merchant accounts are relatively similar:

    1. Identify which credit card networks your customers typically use and assess the payment model you feel comfortable adopting. Pricing models generally are either recurring or one-time payments.

    2. Analyze your annual order turnover and prepare the necessary paperwork.

    3. Submit applications to your prospective high-risk merchant account service providers.

    4. Wait for the results. Processors typically approve or reject applications within three to five business days.

    Factors to Consider When Selecting A High-Risk Merchant Account

    Given the steep ​​high-risk credit card processing fees, merchants might find themselves on the fence when comparing quotes between different processors. Go beyond the rates. While affordable processing fees help you turn a profit, you shouldn’t overlook these crucial factors as well:

    • Reliability: Choose a reliable processor with little to no system downtime. Using unreliable POS systems prone to crashes jeopardizes your brand reputation and conversion rates. 20% of digital buyers abandon their online carts altogether when faced with payment processing issues like limited modes of payment or slow checkout pages.
    • Customer Service: Even the largest commercial banks in the country experience tiny hiccups now and then. Mishaps are not wholly unavoidable. In anticipation of these instances, choose high-risk payment processors that offer excellent customer service. Having skilled, personable customer service representatives supporting you during system downtimes can make all the difference.
    • Industry Specialization: Not every high-risk merchant processing service provider caters to the same market. Choose one that specializes in your industry. For instance, PaymentCloud has flexible guidelines on payments for CBD products, while 2Checkout focuses on processing overseas transactions for small eCommerce businesses.
    • POS Hardware Convenience: Hop on threads and discussion boards for factual, real-life user POS system user reviews. Choose processors with easy-to-use POS hardware and software options. Complex systems put you at risk of mishaps or delays in the checkout process, thus compromising the customer’s shopping experience. 
    • Transparency: Prioritize transparency over cheap card processing fees when comparing quotes. Remember: processors charge more than just processing fees. If you focus all your attention on their pricing plan, you might overlook crucial hidden monthly and annual expenses. Processors should explicitly break down their rates right from the get-go.

    Best High-Risk Merchant Providers in 2022

    Technological advancements paved the way for high-risk merchant services. Nowadays, dozens of third-party processors perform credit card processing for high-risk merchants. They work with front- and back-end processors like commercial banks.

    While having a broad range of options might feel liberating, startups and new entrepreneurs might find it challenging to navigate through the different processors. They might not even know their payment processing needs yet.

    Moreover, high-risk payment processing often costs more than regular merchant services. Finding a reliable processor is one thing, but finding a dependable high-risk processor that charges competitive fees is another.

    Fortunately, we’re here to help. Use our quick list of the best, most widely used high-risk payment processors as a starting point in comparing your options:

    • Durango Merchant Services: Durango stands as the best international merchant account for high-risk business owners that cater to overseas customers. They’re popular amongst businesses targeting Panama, Canada, and Europe.
    • 2Checkout: They offer predictable flat-rate pricing options ideal for low-budget eCommerce businesses and digital startups.
    • Host Merchant Services: HMS suits high-volume businesses that need a reliable system to process hundreds of orders daily.
    • PaymentCloud: High-risk eCommerce shops selling regulated items CBD or pornography can turn to PaymentCloud.
    • Stripe: Tech-savvy business owners can utilize Stripe’s developer-friendly, customizable payment processing system.

    Frequently Asked Questions

    Do you still find the concept of high-risk merchant processing confusing? You’re not alone. Here are some of the most commonly asked questions that merchants have about high-risk credit card processing:

    What is a high-risk merchant account?

    High-risk merchant accounts are special payment processing accounts assigned to businesses with a specific risk association. Commercial banks rarely offer this type of merchant account. High-risk business owners have to rely on third-party processors to serve as intermediaries between them and commercial institutions.

    What is considered a high-risk business?

    Financial institutions typically assess your risk association based on your susceptibility to chargebacks, fraudulent transactions, and financial failure. The factors involved vary on a case-by-case basis. However, any business that handles prohibited goods, financial services, or international products classifies as a high-risk merchant.

    What is a high-volume merchant account?

    Businesses that process hundreds to thousands of transactions daily should consider switching to a high-volume merchant account. This payment processing solution minimizes the risk of system downtime and allows you to process as many orders as you need.

    What is a high-risk transaction?

    In payment processing, a transaction classifies as high-risk based on its susceptibility to chargebacks. Processors lose significant financial resources to process returns. Even if the chargeback does not push through, investigating and disputing these cases requires over a month of work.

    Being A High-Risk Merchant

    Overall, financial institutions perform intensive risk assessments for their protection. Processors cannot jeopardize their brand by processing payments from merchants with dangerous goods or high chargeback rates. For this reason, commercial banks avoid risky clients. Fortunately, you don’t have to worry because dozens of processors offer high-risk merchant services nowadays.

    We strongly recommend exploring all possible options when applying for a high-risk merchant account. While it might feel tempting to blindly accept the first offer that comes your way, note that some third-party processors trick newbies into unfair agreements. Peruse your contract thoroughly. Take your time choosing the most suitable option based on your processing needs.

    Are you on the fence about which payment processor to open a high-risk merchant account with? Assured Standard can help you decide. Check out our in-depth comparison review of the best high-risk merchant service providers on the market.