Do You Need a High-Risk Merchant Account? How Do You Rank With Processors?
It’s virtually impossible for eCommerce merchants to operate without accepting credit or debit cards. Before you can accept electronic payments, though, you need a payment processor. This is an entity who acts as a liaison between you, banks, and credit card networks.
Many processors prefer to do business exclusively with merchants who they see as a “safe” or “low-risk” investments. Businesses that are considered “high risk” will have a limited selection of potential processors to choose from.
In this article, we’ll discuss the ins and outs of high-risk merchant accounts and processing. We’ll explore the added costs and barriers faced by high-risk merchants and why they may pay more to process payments. Finally, we'll identify some service providers that can help those operating in high-risk verticals.
What is a High-Risk Merchant Account?
- High-Risk Merchant Account
A high-risk merchant account is a subset of services that allow businesses in high-risk verticals to accept card payments from customers. These accounts typically come with stricter requirements and stipulations than standard merchant accounts, and will be costlier to maintain.
[noun]/* hī • risk • mər • CHənt • ə • kount/
Let’s say you want to open a new merchant account to accept credit card payments for your business. Any processor you approach will take a careful, detailed look at your business to determine if you fall under their definition of “high risk.”
Processors assign merchants to one of two categories—high risk or low (normal) risk—based on a number of factors. Ultimately, though, this determination is based on the degree of financial risk your company presents to the institution. Specifically, how susceptible you are to fraud and chargebacks.
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High-risk merchants face limited choices in processors. They will also have to pay higher fees to offset the perceived risk, and contend with stricter contracts.
Being labeled “high-risk” does sound bad, at least at first glance. In some scenarios, though, it might be your best (or only) option.
What Makes a Business High-Risk?
Being a ‘high-risk’ merchant doesn’t necessarily mean that your business is more untrustworthy than your counterparts. What it actually means is that processors trend to see a higher rate of disputes in your vertical. Risk is estimated according to the frequency of chargebacks a processor can expect to facilitate each month. It's not really indicative of your business worthiness.
Let’s break down some of the factors that could lead to your business being designated as high risk:
|Low-risk merchant||High-risk merchant|
|Average monthly sales volume||less than $20,000||over $20,000|
|Average credit card transaction||less than $500||Over $500|
|Different currencies accepted||One||Multiple|
|Offer recurring (subscription) payments||No||Yes|
|Placed on MATCH list/history of excessive chargebacks||No||Yes|
|Main product offering||Low risk: books, office supplies, clothing, home goods, etc.||High risk: software, digital, tickets, seasonal items, etc.|
|Based in or sell to a high-risk region (anywhere outside the US, EU, CA, JPN, or AU)||No||Yes|
Note that there is no middle ground here. Once a processor evaluates your business, they'll make an ‘either/or’ decision. In the processor's eyes, you're either high risk, or you're not.
What Verticals are Considered “High Risk?”
Although not the end of the world, being a high-risk merchant certainly presents its own set of complications. Many legitimate businesses receive the label from payment providers simply for the number of items they sell per month. Perhaps the most common reason why merchants get labeled as “high risk” is their merchant category code, or MCC.
Some verticals have historically proven to be more prone to chargebacks. As a result, the MCCs tied to those verticals are almost universally considered high risk. Examples include:
- Casinos, Gambling, or Gaming
- Telemarketing, Calling Cards, VoIP
- Pharmaceuticals, Online Drug Providers
- Adult Entertainment, Dating Services
- Travel, Accommodations, Ticketing Agents
- Attorneys, Bail Bonding Services
- Subscription Services (Magazines, Collectibles, etc.)
- Credit Repair/Debt Reduction Counseling
You may also be required to secure high-risk merchant services because of the method you use to generate sales or leads. Examples of high-risk tactics include:
- Impression-based advertising (pay per impression).
- Lead-based advertising (pay for sales leads).
- Pay-per-action advertising to direct affiliate publisher or affiliate network.
- Outbound calling or upsell tactics (online or via call center).
What to Expect With a High-Risk Merchant Account
The privilege of accepting credit cards comes at a price. That’s true, regardless which provider you deal with. If you need to work with a high risk merchant account provider, though, the price will be higher in many ways.
EXCESSIVE FEES AND TERMS
Providers specializing in high-risk merchants typically charge higher-than-average fees and demand strict contract conditions. A few providers specialize in backing merchants that even other high-risk processors have turned down. Naturally, the fees and contracts these companies require tend to be more strict than conventional merchant processing.
Unfortunately, there are some scammers out there who target merchants in trouble. They offer help at ridiculous prices and based on iron-clad contracts that will be nearly impossible to escape. Before you sign with any service provider, be sure to do research, check reviews, and look up reports from the Better Business Bureau and other advocate groups. FInally, always read (or better yet, get your attorney to read) the fine print.
Account reserves are a way for the payment processor to hedge its bets. If something goes seriously wrong for you, your acquirer will be insulated from loss by the account reserve. There are three basic types of reserves:
- An up-front reserve gives the processor permission to withhold all funds from credit card transactions until a reserve balance is met.
- With a rolling reserve, providers withhold a percentage of your daily revenue and hold it for a limited time, returning the money as other funds become available.
- With a fixed (capped) reserve, the acquirer withholds funds up to a predetermined reserve cap. Once the cap is reached, they won’t withhold additional funds unless the reserve is tapped.
You can learn more about merchant account reserves here.
High Risk Merchant Account Providers
Many traditional processors might reject a business that incurs more chargebacks. Thus, it can sometimes be necessary to seek out high-risk merchant services. Where do you start, though?
You want to seek reputable processors who specialize in high-risk merchant solutions. But, before you choose a payment processor, make sure you scour their fine print for terms and conditions and take careful notice of their fees. Every platform is different. One might provide options that are better-suited for your business than what a competitor offers.
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Here are just a few excellent high-risk merchant account providers to help you start your search off right:
|Focusing primarily on high-risk e-commerce businesses, eMerchantBroker claims they approve 99% of all account applications. The company has a positive reputation for transparent customer service and reliable support.|
|CardMax Payments offers flexible accounts, easy set-up, and competitive pricing. Relationships with more than 30 domestic and international banking providers help CardMax provide exceptional service and support.|
|Cayan has a reputation for helping businesses develop more meaningful customer connections through cutting-edge payment solutions. They’re also known for reasonable pricing, and not requiring an early termination fee (ETF).|
|With flexible multi-currency accounts, Durango Merchant Services works with both US and international merchants. The company has earned high marks for its outstanding customer service and customized pricing plans.|
|Global Merchant Advisors delivers customized processing solutions that allow merchants to focus on growth rather than payments. GMA advisors are available to guide merchants every step of the process.|
|Host Merchant Services offers both standard processing and special services for high risk merchants. In addition to gift- and loyalty-card programs, the company provides a free website with email service to new merchants upon request.|
|HRMA-LLC specializes in high-risk merchant accounts and ACH processing for high-risk business verticals. They offer payment processing for practically every high-risk business type. HRMA-LLC offers fast approvals with no setup fee.|
|Using an omni-channel platform that adapts to any payment experience, Inovio strives to simplify the confusing payment process. Their flexible APIs, seamless integration and other services work with multiple payment technologies.|
|Instabill offers PCI compliant solutions--including online payment gateways--and a global reach. They work with all major credit card schemes and their solution supports international currencies, including British pounds, euros, and more.|
|The experts at PayKings can help merchants set up a low- to high-risk merchant account that delivers affordable merchant services, online credit card payment processing, and seamless integration with the merchant’s existing platform.|
|With a reputation for transparent and honest sales practices, Payline Data offers quality customer support along with several merchant-friendly rate structures. Month-to-month billing and no early termination fee are also pluses.|
|PaymentCloud serves a range of business types--including high-risk merchants--with a reported 98% approval rate for new merchants. Pricing is based on business history, and the company has no application or account setup fee.|
|Soar Payments provides excellent customer service along with a good selection of pre-planned service packages. The company strives to be transparent in its costs, providing simplified, "no-haggle" pricing.|
|Billing itself as a "new kind of service provider," T1 Payments offers flexible underwriting, easy application process, flat rates, and expert support--all combined into a state-of-the-art solution with dedicated end-to-end service.|
How High-Risk Merchants Can Fight Back Against Chargebacks
Even with all the downsides, some merchants prefer—or at least are willing to accept—working with a high-risk merchant account. Many verticals represent significant earning opportunities if you’re willing to accept the higher risk and profit withholdings that come with them.
There's another appealing element of high-risk accounts to consider as well: limited chargeback penalties. Providers are less likely to close a high-risk account because of excessive chargebacks, since that is why many merchants end up seeking high-risk merchant processing in the first place. Maintaining a high-risk merchant account may be costlier, but it’s a reliable way to ensure business sustainability in the face of rising chargeback issuances.
That said, if you are experiencing a high rate of chargebacks, or are looking to lower your chargeback ratio to avoid higher costs…there is an alternative.
Chargebacks911® enables sellers in all MCCs, sales models, and product verticals to increase profitability. We help standard merchants avoid excess chargebacks, and help high-risk merchants recoup revenue that would otherwise be lost to fraudulent chargebacks.
Contact us today for a free, no-obligation chargeback analysis and learn exactly how much you could be saving.