card or credit card payments has become the standard these days. Gone are the
days when merchants could operate as a cash-only business. However, if the business is considered to be
high risk, it can be difficult to obtain a merchant account to be used for
What is a High Risk Merchant Account?
First of all,
there would be costs associated to accepting credit cards as a form of payment.
Some of the major card networks such as American Express, Discover, Master Card
and Visa charge interchange fees for using their network and the Merchant
Service Providers (MSPs) also charge processing fees for the connection of the
card from the issuing bank to the acquiring bank through payment processors
like TSYS or First Data.
processor and the merchant account provider assume the majority of the risk for
a transaction, they would charge fees for the services, including the
interchange fees which the card networks charge. High premiums are charged on
merchant accounts to minimize the risks associated with risky merchant
high-risk merchant account is one for an industry or business which is
notorious for fraud, chargeback and is considered to be risky by association.
How to Know if One Is a High-Risk Merchant?
Now that you
have an idea of what a high-risk merchant account actually is, the risk level
of businesses as determined by MSPs would be examined. When applying for a merchant account, there
would be an underwriting process which the account provider would use to
eliminate the risk of adding the account to the portfolio. Here are some of
points that are taken into account.
- The personal credit history.
- Number of years in the business.
- The company financials.
- Merchant category code or type of business.
- Merchant account history.
The type of
business that one operates would have a significant impact on the rates that
they would have to pay for each credit card transaction.
are some of the high-risk businesses.
- Pharmaceuticals: Perhaps, it is considered to be one of the
most risky businesses out there. Controlled substances that have an
irreversible effect are taken into account. Pharmacies are on the list. The
cannabis industry is also a high-risk business. Although, there are many states
which have started to legalize marijuana for medicinal and recreational
- International Business: Businesses which cross international
lines are considered to have a higher risk as the likelihood of fraud
- Gaming: The gaming industry is notorious for chargeback and
fraud. One of the issues is that of betting.
- Firearms: There is a risk by association, besides just fraud
or legal matters in the industry. Due to the stigma on gun ownership, banks are
criticize or even penalized for conducting business with such merchants.
- Adult Entertainment: Adult content is also considered to be
- Travel and lodging: Hotels and travel agencies are also
considered to be high-risk merchant accounts. Unsatisfied customers have even
Options Available for High Risk Merchant Accounts
If a business
falls within any of the high-risk categories as mentioned above, there is still
hope. It is still possible to obtain a merchant account. However, the rates and
terms of the contract would be less desirable as compared to other low-risk
is still good news because there are plenty of merchant service providers which
specialize in accounts, that are high-risk. Besides, as the cannabis industry
and online gambling makes it way towards national legalization, it wouldn’t be
a surprise for more high-risk account providers to prop up in the future. It is
even possible for these types of businesses to lose their high-risk category
of the MSPs advertise low-risk and standard merchant rates, when it comes to
high-risk account fees, they are normally less transparent as there are more
variables which need to be considered. However, one thing is for sure and that
is the fact that high-risk merchants are expected to pay about 1-2 percent or
more for every transaction.
In addition to
the above, it is likely that the account provider would require a reserve to be
kept by you if you are deemed to be a high-risk business. MSPs offer three
types of reserve accounts.
- Rolling Reserve: It is
a risk management strategy which is used to protect the account provider from
chargebacks, potential fraud or any other incident. It is like a buffer or even
an insurance policy. A certain percentage of the daily revenue would be
withheld by the payment provider and it would be released later.
- UP-Front Reserve: It is for new businesses.
- Fixed or Capped Reserve: A certain percentage of every
transaction is withheld until the cap amount is reached.
How to Keep Safe from Chargebacks
methods should be used to prevent chargebacks.
Be Transparent and Upfront
product that you sell, it is important to describe each component of the
product in complete detail. Although, this seems obvious, many businesses fail
to completely disclose the information about their products. It is advised to
show interactive demos, images or free trials. It offers customers with plenty
of information. Chargebacks can be mitigated by allowing customers to make more
Have a Clear Merchant Name
It is the name
which appears on the customer’s bank statement or credit card. You would be
more likely to receive chargeback if the name is listed other than the business
name when the transactions occur. The customer would question their
transactions if they are not able to recognize the company name.
Learn to Spot Fraud
If you run a
local shop, then there would be regulars. It means that if they use their
spouse’s card or parent’s card then you might not be as alarmed. However, if
you use an online storefront, then there would be extra legwork involved.
Pay attention to
suspicious details such as a mismatch between shipping address and billing, or
incorrect credit card codes.