What Is a High-Risk Merchant Account and Do You Need One in 2024?

Are you tired of being turned away by payment processors because your business is labeled ‘high-risk’? It’s frustrating when the very thing that makes your business unique also puts you in a category that seems to have more doors closing than opening.

Here’s the deal: a high-risk merchant account could be the key to unlocking those doors. Whether it’s due to your industry, chargeback rates, or credit history, this account is your gateway to seamless transactions.

In this post, I’ll guide you through what a high-risk merchant account is, why it might be essential for your business, and how to navigate the process of securing one. Let’s cut through the complexity and get your business the financial freedom it deserves.

What is a High-Risk Merchant Account?

Merchant accounts are types of bank accounts that allow businesses to accept and process credit card payments. These accounts are established with a banking institution and then linked to your business’s checking account. When a customer purchases with a credit card, the funds are transferred from the customer’s account to your merchant’s account, minus any processing fees.

Merchant accounts are a must for businesses that want to accept credit card payments. They allow businesses to process these payments quickly and efficiently.

Taking it a step further, a high-risk merchant account is merchant account for businesses that are seen as being high-risk by banks and other financial institutions. This account allows high-risk merchants to process credit and debit card payments.

In addition, merchant accounts provide businesses with a level of protection against fraud and chargebacks. Chargebacks occur when a customer disputes a charge on their credit card statement and the credit card issuer refunds the customer’s money. If your business does not have a merchant account, you can lose this refunded money.

Overall, high-risk merchant accounts are beneficial for both businesses and customers. They provide you with a way to accept credit card payments while getting protection against fraud and chargebacks. Customers benefit from being able to use their credit cards to make purchases.

Understanding High-Risk Merchant Accounts

Why Some Businesses Are Considered High-Risk for Merchant Accounts

A business may be considered high-risk because of its financial history, industry, or business model.

• A business with a poor financial history, a low-average credit score, or has had difficulty in the past with a previous processor
• Businesses that sell highly-regulated services and goods or fall into legal gray areas (think CBD merchants, for example)
• Businesses that have a high chargeback- and fraud rate, offer a recurring- or subscription payment plan, or have high-average ticket sales

These businesses still want to accept online payments, but they have a harder time finding merchant services because of the potential risks involved. That’s where high-risk merchant accounts come in.

Comparing Fees and Terms: High-Risk vs Low-Risk Merchant Accounts

Let’s go over the possible risk factors for a business being classified as high-risk. Processors may charge different fees, require different reserves, may vary the terms and conditions, or have different application processes depending on the risk category. Below is an overview of the characteristics of business risk categories.

High-risk merchant accounts may:

• Have higher fees
• Require a reserve
• Have stricter terms and conditions
• Have early termination fees
• Be more difficult to obtain

Low-risk merchant accounts:

• Usually have lower fees
• Rarely require a reserve
• Often have more flexible terms and conditions
• Usually easier to obtain approval for account setup

Why Do You Need a High-Risk Merchant Account?

There are several reasons why your business might need a high-risk merchant account.

1. You sell products or services that are considered high-risk. For example, firearms, adult entertainment, CBD products.
2. You have a history of chargebacks. on why a business might need a high-risk merchant account is if the business has a history of chargebacks. Chargebacks occur when a customer disputes a charge on their credit card statement and the credit card issuer refunds the customer’s money. If a business has a high number of chargebacks, it may be classified as high risk. Some credit repair merchants have had problems with chargebacks.
3. You have bad credit or credit history.

Overall, businesses that are considered to be high-risk need a high-risk merchant account to process ACH and credit card payments.

Assessing Your Business Risk

Are You a High-Risk Business?

Is your business considered high-risk? It doesn’t mean you’re more untrustworthy than other merchants.

There are a few things you can do to determine if your business qualifies as high-risk:

• Check with your current processor – they may have guidelines or red flags that will help you determine if your business is considered high-risk.
• Research common high-risk industries – this can give you an idea of whether or not your industry is typically considered high-risk.
• Look into your business history – if you have a history of chargebacks or fraud, this could make your business considered high risk.

If you are still not sure if your business is considered high-risk, there are a few things you can do to get more information:

• Contact a merchant account provider – they will be able to tell you if your business is considered high-risk and what type of account would be best for your business.
• Consult with a business lawyer – they will be able to give you more information on the legal aspects of running a high-risk business.
• Get in touch with a financial advisor – they can help you understand the financial risks involved in running a high-risk business.

What Are the Benefits of a High-Risk Merchant Account?

There are a few benefits that come with having a high-risk merchant account:

• You can get approved for an account even if you have bad credit or no credit history.
• You can get approved for an account even if you have a history of chargebacks or fraud.
• You can get approved for an account even if you are in a high-risk industry.
• You can get approved for an account even if you have a low-average credit score.
• You can accept card payments and mobile payments even if your business is in a high-risk category.

What Are the Drawbacks of a High-Risk Merchant Account?

There are also a few drawbacks that come with having a high-risk merchant account:

• You may have to pay higher fees than businesses that are not considered high-risk.
• You may have to put down a deposit or provide collateral.
• Your account may be subject to more frequent reviews and audits.
• Your account may be closed without notice if you violate the terms of your account.
• You may have to pay an early termination fee.

Now that you know more about high-risk businesses and merchant accounts, you can decide if a high-risk merchant account is right for your business.

Getting Your High-Risk Merchant Account

How Do I Get a High-Risk Merchant Account?

Because banks want service accounts containing little risk, applications for high-risk merchant accounts are often a lengthy process when compared with applying as a low-risk company. You will likely need to provide more supporting documentation. The bank will want to do a broader underwriting processes. Also, failure of requesting documentation can delay the approval process.

Where Can You Get a High-Risk Merchant Account?

Several processors offer high-risk merchant accounts. There are also several banks and other financial institutions that offer high-risk merchant accounts. However, not all banks work with high-risk businesses. You may need to shop around to find a bank that is willing to work with your business.

When you are looking for a high-risk merchant account, compare the fees and terms of each option. You should also make sure that the processor or bank you choose is reputable and has experience working with high-risk businesses. Be careful about providers offering instant approval high-risk merchant accounts, though. They generally don’t exit.

Selecting the Best High-Risk Payment Processor

Not all processors that offer merchant accounts will service high-risk merchants. Many providers offer merchant accounts with high risk because the company wants you, but they are inexperienced in dealing with high risks. They can fail to comply with industry codes and can simply cause declined transactions. In addition, these merchant accounts are often not properly underwritten and are therefore vulnerable to fraud. Be careful when selecting your payment processor.

The 7 Best High-Risk Merchant Account Providers

Some merchant account providers that offer a high-risk service have several similarities. Rates and fees are generally higher than the average low-risk provider offers but are still reasonable.

Making the Decision

Is it Necessary to Open a High-Risk Merchant Account?

ECommerce stores cannot be operated without accepting credit/debit payments. Before using electronic payment, you have to use a payment processor. These organizations serve as a bridge between you, your bank, and the card networks. Often processors prefer doing business with retailers whose investments are considered safe or less risky. Businesses deemed high-risk may have a limited selection of processors. But if you want to process credit or debit cards, you will need a merchant account.

What Should I Expect From a High-Risk Merchant Account?

Accepting a payment card comes with costs. If you have a high-risk merchant account, however, the cost is often higher. Here are some of the items you need to be aware of before getting a high-risk merchant account.

Predatory Practices

Unfortunately, some processors use predatory practices. The charge very high fees that are backed by ironclad contracts that may be difficult to get away from. Read reviews before you sign up with a payment service provider. Always check the fine print. Get a lawyer to review any contract before you sign it.

Excessive Fees and Terms

In some cases, the providers offering high-risk merchant accounts often charge high-fees for their services. Compare providers to make sure that you are not being charged more than normal for a high-risk account. But just know, these fees will probably be higher than if you were a low-risk merchant.

Reserves with a Revenue Limitation

With a high-risk account, your payment processor will probably hold funds in reserve to protect themselves against losses. If your business fails, they will take this reserve to limit the money they may lose otherwise.

More Arduous Application Process

High-risk accounts are usually more difficult to obtain; you may need more documentation to apply. The application process usually takes longer, too.

Summary

Overall, businesses that are considered to be high-risk need a high-risk merchant account to process ACH and credit card payments. These accounts are established with banks or other financial institutions that are willing to work with high-risk businesses.

High-risk merchant accounts typically come with higher fees and stricter terms, but they provide businesses with the ability to accept credit cards and other online payments.

Some benefits of having a high-risk merchant account include the ability to get approved for an account even if you have bad credit or no credit history, and the ability to get approved for an account even if you are in a high-risk industry.

However, there are also some drawbacks to having a high-risk merchant account, such as higher fees and the possibility of your account being closed without notice if you violate the terms of your account. When looking for a high-risk merchant account, be sure to compare the fees and terms of each option and choose a reputable processor or bank.