What Is a High-Risk Merchant Account and Do You Qualify for One?

Digital payments continue to soar in popularity as more consumers turn to shopping and completing transactions online. As the internet takes over transactions, businesses must rely on payment processing solutions for safe and efficient funding. Unlike a typical business, high-risk merchants have to deal with fluctuations in their financial stability, frequent customer disputes, and other unpredictable dilemmas. Because of their risk exposure, this makes finding the right payment processor difficult. Payment processors that allow high-risk merchants often require ridiculously high fees to offset the risk. While most payment providers cater to standard businesses, some have financial services affordably tailored to the high-risk industry. This is despite high-risk merchants being prone to fraud, chargebacks, and insufficient funds. Who decides if a business is a risk? Also, what factors contribute to categorizing a business as “high-risk”? This article uncovers these more to help you find the right high-risk payment platform.

What Is a High-risk Merchant Account?

Shockingly enough, no central body defines a business’s risk level in the payment industry. Each bank and processor sets its own criteria. While some providers openly avoid specific industries, others assess detailed business information to gauge risk. Ultimately, acceptance or rejection hinges on a processor’s internal risk assessment criteria. Businesses labeled as “high-risk” need a reliable payment processing account to handle customer payments in a reliable way. Sadly, high-risk merchants face higher chances of chargebacks or fraud. This puts payment processors in a precarious position, making them feel cautious about taking on high-risk merchants.


What Factors Determine If a Merchant Is High Risk?

Businesses from certain industries that innately carry higher risks may be automatically flagged as high-risk businesses. Here are a few examples of high-risk industries:

  • Peptide Merchants
  • Moving Brokers
  • CBD (Cannabidiol) Companies
  • Kratom Businesses
  • E-cigarettes and Vape Sellers
  • Pawnshops
  • Stun Guns and Taser Sellers
  • Credit Repair Companies
  • Timeshare Exit Companies
  • Supplement and Nutraceutical Businesses
  • Debt Collection Organizations
  • Casinos and Online Gaming
  • Pharmateucal Compnies
  • Airlines and Ticketing Agents
  • Subscription Services
  • Financial Counseling
  • Cryptocurrency Companies

These are just to name a few.


Factors Leading to Businesses Being Labeled as “High-Risk”

Businesses can wind up being labeled as high-risk due to a variety of factors. Typically, the company is scrutinized for defining patterns in their financial history.


Lack of Payment Processing History

New entrants without prior payment processing experience may be considered high-risk by some processors due to uncertainty about their financial stability and reliability.


Poor Credit History

Businesses with poor credit records or low credit scores due to loan defaults are often perceived as high-risk by processors.




Previous Placement on the MATCH List

Being previously placed on the MATCH list by a processor can amplify the perception of risk for a business.


Controversial Product Lines or Legal Ambiguity

Merchants operating in industries with controversial products or navigating legal grey areas may be labeled high-risk.


Dependence on International Sales

Businesses heavily reliant on international sales may be deemed high-risk due to the unpredictable economic dynamics in foreign markets.


Regulatory and Government Oversight

Industries subject to stringent government regulations or legislation are often categorized as high-risk due to compliance challenges and potential legal issues.


In What Ways Are High-risk Accounts Different From Regular Accounts?

Embracing the label of a high-risk business can be intimidating. It might mean facing rejection from payment processors. Amidst these challenges, there are strategies that payment processors employ to mitigate risks and support such businesses.


Thicker Red Tape and Longer Application Processes

When seeking a high-risk merchant account, brace yourself for a meticulous application process. Merchant service providers delve deep into your financial history, scrutinizing every detail from your business partnerships to personal credit records. This thorough analysis aims to assess your risk profile comprehensively.


Heftier Fees That Pay the Price of Risk

In the world of high-risk businesses, the cost of credit card payment processing comes at a premium. While standard businesses may enjoy processing fees hovering around 0.3% above the interchange rate, high-risk merchants face rates that could soar up to 1.5% plus the interchange rate. Higher risk equals higher fees, a financial reality that must be reckoned with.


Cash Cushions for Building Reserves to Counterbalance Risk

To cushion against potential losses, credit card payment solution providers often mandate cash reserves for high-risk businesses. These reserves can take different forms and can include rolling reserves, capped reserves, or upfront reserves. Regardless of the method, these reserves act as a safety net, ensuring that funds are available to cover any unforeseen liabilities.


Chargeback Fees for Weathering the Storm of Refunds

For high-risk businesses that suffer from chargebacks, processing refunds comes at a cost. Chargeback fees, ranging from $20 to $100 per instance, can quickly add up, especially for businesses with high chargeback ratios. This financial burden underscores the importance of proactive chargeback management strategies.


Volume Limits and Capping Risks with Transaction Thresholds

To mitigate risks associated with high transaction volumes, some credit card processors impose volume caps. Once a predetermined limit is exceeded, further transactions may be halted. While this measure aims to contain risks, it can pose challenges for businesses with rapidly growing sales figures.


Beyond the Basics and Meeting Additional Requirements

High-risk merchants often face additional requirements tailored to their specific business types. From age verification tools for age-restricted goods to stringent compliance measures, these requirements aim to mitigate regulatory risks. Adhering to these stipulations is required to gain approval for payment processing services.



What to Do If You’re a High-risk Business and Need An Affordable Payment Processor

Searching for a suitable payment processor as a high-risk merchant can feel like navigating a maze. However, armed with the right strategies, you can optimize your search and increase your chances of success. Here are some key tactics to keep in mind:


Maintain Financial Health

Keep your business bank account brimming with healthy cash reserves. This not only signals financial stability to processors but also diminishes the perception of risk associated with your business.






Combat Chargebacks Head-On

Tackle chargebacks proactively by identifying and addressing their root causes. Whether it’s discrepancies between product descriptions and actual offerings or prolonged delivery times, analyzing and rectifying these issues can help minimize chargeback incidents.


Embrace Transparency

Transparency is paramount during the application process. Disclose all relevant materials and information to payment processors upfront. Failure to do so can undermine your credibility and hinder your chances of approval. High-risk merchants are often subjected to rigorous scrutiny, so honesty and openness are your best allies.


Organize Your Documentation

Ensure that your financial documents are in order and readily accessible. From six months of bank statements to several years of tax returns, having these documents at your fingertips can streamline the application process. Be mindful of each processor’s specific requirements and tailor your documentation accordingly.


Adhere to Processor Guidelines

Align with the guidelines set forth by your chosen payment processor. In addition to addressing your business needs, consider the risk tolerance of the processor. Engage in open discussions and explore potential risk mitigation strategies suggested by the processor. Flexibility and collaboration can pave the way to a mutually beneficial partnership.


Avoid Relying On Peer to Peer Platforms

Peer 2 Peer payment processors offer lightning-fast payment processing with minimal barriers. However, this streamlined approach comes with its own set of risks. While P2P platforms like Venmo and Cashapp may greenlight your payments initially, they reserve the right to flag you at any moment. They are known to freeze accounts, leaving you stranded without warning. It’s a gamble that many merchants might not realize until it’s too late.



Where to Find An Affordable High-risk Merchant Services Provider

As a high-risk business owner, discovering transparent pricing information for high-risk merchant accounts can feel like hunting for hidden treasure. To get a fair contract, you may need to engage in one-on-one discussions or private consultations with their representatives to present your case effectively. Speak to one of our industry experts about your particular business for transparent and fair pricing.

Ask us about our industry experience and same-day payment processing timelines. Find out why we don’t have reserve requirements or early termination fees. Learn how we support alternative payment methods like ACH processing and bank account drafts. Ask about the reliability and accessibility of our customer support services. Go over some of our additional tools that can support you, which include:

  • Robus Ad Hoc Reporting
  • Recurring Payments
  • Invoicing
  • Payment Links
  • Administrative Access
  • Dashboard Analytics


When Hunting for a Payment Processor You Need To Seek Clarity On Critical Points

It takes time to compare services and find the best fit for you. To make it easier for you, prepare a list of questions ahead of time so that you know what to ask. Also, this makes it easier for our consultants to know what you need for your business.


Key Questions to Ask Payment Processors:
  • How much experience do they have working with businesses in your industry?
  • How long does it take for payments to be deposited?
  • Do they have a reserve requirement?
  • As an alternative to credit cards, do they support ACH Payments and Direct Drafts?
  • Will they charge an early termination fee for switching to another provider in the future?
  • What kind of equipment will be provided?
  • How supportive and accessible is their customer service?
  • What unique features sets them apart from other payment processors?



Does eDebit Direct Cater to High-risk Businesses?

In the realm of high-risk merchants, options may feel scarce, and not every provider is cut out for the challenge. We’ve seen many high-risk businesses turn to us, hoping to find a solution specific to their needs. There are far better high-risk payment processing alternatives to expensive credit card processing rates. 

One of the standout benefits of choosing eDebit Direct is our upfront underwriting process. Before you even secure your merchant account, we delve deep into your business, identifying potential risks from the get-go. This proactive approach not only saves you time and money but also ensures transparency throughout the process. We work with just about any high-risk merchant. If we somehow aren’t the right fit for you, we’ll be upfront about it. We can guide you towards becoming a better fit.

Speak to our industry experts today. Find out more about how we can help through a free consultation.


FAQs about High-Risk Merchant Accounts

Still learning about what it means to be a high-risk merchant? Here is a summary of questions that can help you demystify the high-risk industry.

Q: What is a high-risk merchant account?

A high-risk merchant account is tailored for businesses deemed “high-risk” due to a greater likelihood of chargebacks, fraud, or other financial risk factors. These accounts allow high-risk businesses to accept payments despite these risks.

Q: Which industries are generally considered high-risk?

Various industries, including, moving brokers, peptide businesses, kratom merchants, CBD product businesses, e-cigarette vendors, credit repair services, debt collectors, and more are considered high-risk due to the inherent attributes of these organizations.

Q: Who determines the categorization of a high-risk business? The feds?

The categorization of a business as high-risk is determined by individual payment processors or banks, each setting its own standards based on internal risk management criteria.

Q: What factors make a merchant account high-risk?

Factors such as poor credit history, controversial product lines, or heavy reliance on international sales can contribute to a business being classified as high-risk.

Q: How are high-risk merchant accounts different from regular ones?

High-risk merchant accounts almost always require a longer application process. They can also expect higher fees, cash reserve requirements, and other burdensome restrictions to mitigate risk.

Q: What steps can merchants when placed in the “high-risk” category?

High-risk businesses can maintain healthy cash levels, minimize chargebacks, disclose all relevant information, and adhere to guidelines set by their payment processor.

Q: How can a high-risk business find the right merchant services provider?

High-risk businesses can research specialized payment processors catering to their industry, considering factors such as experience, fees, equipment provided, and customer support.

Q: Can eDebit Direct cater to high-risk businesses?

Yes, eDebit Direct caters to high-risk businesses, offering low fees for fast ACH processing and direct draft transactions, saving time and costs for merchants.

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