5 Signs You Could Benefit From A High Risk Merchant Account

Any business that relies on the ability to accept credit and debit card payments from its customers needs a merchant account for payment processing. However, the standard merchant account offered by most financial institutions isn’t an ideal fit for every business. For any number of reasons, your business might benefit from choosing a high-risk merchant account instead.

What Is a High-Risk Merchant Account?

All institutions that offer payment processing services assume a certain level of risk with each transaction. If a charge is contested or proves fraudulent and the merchant lacks the funds to reimburse the cardholder, the payment processor is liable for that money. Because of this, merchant account providers take steps to reduce this risk by imposing restrictions on the accounts they offer. They are selective about the kinds of business they are willing to work with, deeming some industries too inherently susceptible to chargebacks or fraud. If the payment processor detects “unusual” transaction patterns or decides that a business has had too many chargebacks in a given month, they may terminate the merchant’s account, leaving the business high and dry without a means of accepting customer payments.

High-risk merchant accounts are the solution to these problems. Certain payment processing institutions are willing to take the risk of working with merchants with “high-risk” profiles, offsetting that risk in other ways that don’t leave a merchant hovering on the precipice of account termination. The terms of a high-risk merchant account are generally different than you would find in a more standard payment processing agreement, but the advantages for a business that needs a high-risk merchant account more than offset any inconveniences.

Signs that a High-Risk Merchant Account is Right for Your Business

You don’t have a spotless financial history.

If you’ve ever had a standard merchant account terminated or had a merchant account application rejected for any reason, your chances of being approved for another such account are minimal, making a high-risk merchant account your best recourse. High-risk payment processors won’t flinch away from a less-ideal credit score or a temporary history of higher than average chargebacks.

You’re in a “High-Risk” Industry.

Even a spotless credit rating and a financial history above reproach won’t help you if the very nature of your business falls into one of a payment processor’s “red flag” categories. Certain industries are more prone to fraud or high chargeback rates, or simply have “reputation problems” that many financial institutions don’t want to touch. Examples of high-risk industries include:

  • Adult products or online dating services
  • Nutraceuticals
  • Credit repair
  • Travel services
  • Firearms
  • Annual membership services
  • Website design
  • Multi-level marketing
  • Vaping and E-cigarettes

You sell high-ticket items or recurring subscriptions.

Large lump-sum transactions make standard processors nervous because of the possibility of fraud, for which they may be ultimately liable. Likewise, recurring payments are frequent targets of chargebacks. Either of these kinds of transactions will get a standard merchant account flagged, but high-risk payment processors are more flexible and with the right preparation more accepting.

You experience (or anticipate) high rates of chargebacks.

With a standard merchant account, experiencing chargebacks in excess of a predetermined percentage of your transaction volume (typically 1%), or valued at more than a certain threshold, usually results in account termination. Companies offering high-risk merchant accounts expect you to have a temporary higher rate of chargebacks, and build that expectation into their business model. You may pay a higher fee per chargeback than lower-risk merchants, or be required to maintain a reserve fund to cover expected higher levels of chargebacks as you get back on track, but as long as they are not above 1.5% to 2% over a long period of time your ability to process transactions won’t be threatened in the same way as it is with traditional merchant accounts.

You want a higher level of security and fraud protection.

While all merchant account providers have some level of fraud protection in place, high-risk payment processors expect a greater incidence of fraud in the transactions they process, and therefore encourage stronger security measures to authenticate both the card itself and the transaction. This increased level of monitoring protects not only the payment processor, but the merchant and the cardholder, allowing your customers to shop with greater peace of mind. If you want to lower your chargeback rates, see how much you can save with shopper friendly EMV 3D Secure 2.0, which also shifts the liability to the card issuer.

Advantages of a High-Risk Merchant Account

If any of these apply to your business, switching to a high-risk merchant account may offer some distinct benefits.

  • Reduced risk of account termination: a temporary higher number of chargebacks or sudden increase in transaction volume won’t put you at the same risk of termination as with standard processors.
  • Encourage heightened chargeback and fraud protection: high-risk payment processors can help you implement the best security measures available to protect themselves, and by extension, you. See our EMV 3D Secure 2.0 calculator to find out how much you could save.
  • Easier access to international markets: standard payment processors shy away from overseas transactions and multiple currencies. High-risk processors are much more comfortable with international markets.
  • Careful underwriting and initial setup: whether you’re opening a new online store or replacing a terminated standard merchant account, Durango Merchant Services uses careful underwriting processes that are less likely to bite you later on.