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What is a “High Risk” Merchant Account?

January, 2021

Sales

Payments

Risk

A high-risk merchant account is a payment processing account for businesses considered by the acquiring bank or card schemes as “high risk”. Generally, high-risk businesses are more prone to chargebacks, and therefore they are subject to higher fees and stricter requirements.

Getting a merchant account approved for a high-risk business is not as easy as getting approved for a “low risk” merchant account. There are behind the scenes rules and requirements as dictated in large part by acquiring banks. You would be hard pressed to find a major bank willing to entertain high-risk businesses. But what does it mean for a merchant to be “high risk”? How are they different from “low risk” merchants?

Low Risk vs. High Risk Merchants

Let’s take a look at the factors behind why some merchants are considered “low risk” while others are considered “high risk”.  There are several factors that go into determining if a merchant is “low risk” or “high risk”.  All processors have their own specific set of guidelines when it comes to merchant risk assessment however there are some general rules that apply across the board.  Factors taken into consideration when determining a merchant’s risk status include:

  • Average monthly volume
  • Average ticket size
  • Chargeback history and MATCH list status
  • Product offering
  • Industry

Each of the factors above can be explored in depth but the bottom line is, the more chargebacks a business comes with, the higher the risk.

Chargebacks

When it comes to merchant accounts, businesses that are more prone to chargebacks are generally considered high-risk. Even within the high-risk space, some businesses are more prone to chargebacks than others. Because chargebacks are a critical factor for banks when considering whether or not to work with a high-risk business, risk averse banks choose not to work with this category of merchants.

That is where a payment processor comes in. Finding the right payment processor whose sponsor bank allows high risk businesses is your ticket to getting a high-risk business setup to accept payments. There are payment processors, such as Signature Payments, who specialize in high-risk merchant accounts. These processors have invested time and resources into developing relationships with sponsor banks that allow them to work with high-risk merchants and have the tools, expertise to properly manage them.

Industries

There are many industries that are considered to be “high risk”. If a merchant falls under that industry, they will need a “high risk” merchant account. Some examples are: firearms, adult based businesses, dating sites, membership based merchants, telemedicine, digital goods, and coaching/seminar merchants to name a few.

Reputation also plays a role in determining a merchants level of risk. Some industries carry reputational risk that banks don’t want to be associated with, particularly when it comes to the adult industry and firearms.

What to look for in a high-risk processor

There is no shortage of high risk processors who would like your business. With that in mind, doing research is important to make sure that you find a processing partner who will support your business.

Technology. When looking for a processing partner, go beyond asking about their hardware offerings and find out about their technology platform. You want a partner who is pushing the envelope, not running to play catch up.

Support.  When looking for a high risk merchant account, make sure you find a partner who has both the man power and the know how to support you specific business needs. You want someone on your side when things don’t go as expected.

Pricing. Look for a processor who offers transparent pricing. Make sure there are no hidden fees or extra costs. If it’s overly complicated, they could be hiding something.

Chargeback Prevention.  For high risk merchants, a processor who provides tools and technology designed to prevent and fight chargebacks and help merchants recover revenue and scale profitability is particularly important.  Make sure the processor is equipped with the tools you need to grow.

An Experienced Partner

Signature Payments has been providing high-risk merchant accounts to businesses for over 20 years. As experts in the high-risk space, we have a team of in-house experts able to help you get your merchant account approved. Please reach out to our team of experts. We’d love to get you approved.