High-risk merchant accounts cost more because processors take on greater financial risk and need additional resources to manage these accounts. The elevated fees cover potential chargebacks, enhanced security measures, and account monitoring services that protect both the processor and merchant.
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Updated by 12.03.2024
What Is a High-Risk Merchant Account?
Just because you’re a high-risk merchant, too risky for a traditional merchant account, doesn’t mean you’re too risky for business.
Not all merchant accounts are equal in the payment processing landscape. Due to their industry nature or operational model, some businesses require specialized payment processing solutions that banks won’t provide.
High-risk merchant accounts meet these unique needs. They provide payment processing solutions for businesses facing elevated risks of fraud, chargebacks, or financial instability.
And if you’re wondering, “What is a high-risk merchant?” It’s simply a business that processors consider more likely to generate chargebacks or fraud
So, whether your business deals with digital products, recurring billing, or cross-border transactions, the right payment processor can provide debit and credit payment processing services that accommodate your unique risk profile.
Factors That Make a Merchant High-Risk
While the label ‘high-risk’ seems alarming, it simply reflects specific operational characteristics that require specialized infrastructure and expertise from payment processors.
#1. Industry Type
Although some processors may hesitate to serve certain sectors, specialized payment processors like E-Complish understand the nuances of these industries.
- Adult Products & Services: These merchants must document billing authorizations and maintain reserves across multiple processors to protect against high chargebacks and potential account terminations.
- Gambling: Online betting platforms require instant high-volume settlement, segregated player funds, and robust KYC and fraud detection systems.
- Pharmaceuticals & Supplements: Health product retailers need processors that can handle strict FDA compliance, international scrutiny, and frequent chargebacks from product efficacy disputes.
- E-Cigarettes & Vapes: Strict compliance with varying state laws often means maintaining relationships with multiple payment processors.
- Credit Repair: Such companies require high-risk merchant accounts due to processors’ strict demands: service agreements, compliance verification, cancellation policies, and revenue holdbacks to protect against frequent chargebacks.
- Multilevel Marketing (MLM): Direct selling companies must navigate FTC regulations and banking skepticism, particularly for MLMs, which often require multiple merchant accounts to mitigate sudden closures.
- Telemarketing: Telemarketers need specialized processors due to high dispute rates and strict federal regulations around transaction documentation and calling consent.
- Stun Guns & Tasers: Self-defense product merchants adhere to state-specific compliance, making processor relationships difficult to maintain, especially for interstate sales.
- Pawnshops: Split retail lending businesses require separate payment systems, leading to frequent transaction holds due to unusual activity patterns.
- Tech Support: Remote tech support businesses often deal with unhappy customers disputing charges, leading to high chargeback rates.
Did you know E-Complish offers payment processing services for these high-merchant accounts? Take a look at the industries we serve.
#2. High Chargeback Rates
As mentioned, high-risk merchants incur a high number of chargebacks. Chargebacks occur when customers dispute transactions and request refunds through their banks. Banks dislike chargebacks because they’re expensive to process and can trigger regulatory scrutiny — each dispute costs them money in refunds and staff time to investigate.
Too many chargebacks get banks in trouble with regulators and card networks. Chargebacks are costly for businesses, too — on average, around $20, but they can be as high as $100 per incident. Consistent chargebacks may lead to increased processing fees or merchant account termination.
Common causes of chargebacks include:
- Criminal fraud (stolen cards)
- Friendly fraud (customer abuse)
- Merchant errors in billing
- Unclear product descriptions
- Poor customer service
- Delivery issues
This is where choosing the right payment processor is crucial. Payment processors specializing in high-risk industries offer robust chargeback management tools, including real-time monitoring, automated response systems, and fraud prevention measures. They also provide expertise in handling disputes and maintaining acceptable chargeback ratios to protect your processing capabilities.
#3. Fraudulent Activity
Moreover, high-risk businesses have complex payment processing chains, creating vulnerabilities for fraudsters to exploit. For instance, adult entertainment sites frequently face credential stuffing attacks, while cryptocurrency exchanges battle sophisticated identity theft schemes.
Identity theft and account takeover schemes also target high-risk merchants because fraudsters know these businesses operate in regulatory gray areas. Card-not-present fraud is especially problematic as many high-risk merchants operate primarily online, where transaction verification is more challenging than in-person sales.
Therefore, merchants must implement strict fraud prevention measures, including advanced KYC protocols, real-time transaction monitoring, and specialized chargeback prevention strategies. Without these protections, businesses risk losing merchant accounts due to fraudulent activity.
#4. International Transactions
International transactions also amplify existing fraud risks. Card testing schemes often originate from foreign IPs, where bad actors exploit the geographical distance to test stolen cards. Friendly fraud becomes more prevalent in cross-border transactions, as different countries have varying chargeback regulations and consumer protection laws that fraudsters can manipulate.
Additionally, merchants must simultaneously adhere to multiple regulatory frameworks — from maintaining PCI DSS certification for secure payment handling to ensuring GDPR compliance for European customers’ data privacy. Each operating country adds another layer of financial regulations. A single misstep in any jurisdiction can result in severe penalties, processing restrictions, or complete account termination.
Successful international processing requires sophisticated payment routing, multi-currency support, and robust fraud prevention systems precisely calibrated for cross-border transactions. That’s why high-risk merchants should partner with payment processors experienced in international commerce to minimize risks while maximizing global market opportunities.
#5. Subscription-Based Models
Merchants love subscription models: predictable revenue, stronger customer relationships, and automatic monthly payments turn one-time buyers into reliable revenue streams.
However, these business models face unique chargeback challenges, making them high-risk. For example, customers forget subscriptions, miss trial end dates, or struggle with cancellations. Some even file disputes after legitimate sign-ups — classic subscription fraud.
Smart merchants fight back with clear billing practices: pre-billing alerts, recognizable payment descriptors, and bulletproof authorization records. Flexible options like pause features and easy downgrades keep customers happy and chargebacks low.
Traditional vs. High-Risk Merchant Account Comparison
While traditional merchants might thrive with basic payment solutions, high-risk merchants require specialized processing features to manage their unique business challenges and protect their revenue.
| Feature | High-Risk Merchant Account | Traditional Merchant Account |
|---|---|---|
| Industry Focus | Adult products & services, gambling, pharmaceuticals, etc. | Retail, e-commerce, and services |
| Underwriting Process | More stringent and time-consuming | Less rigorous and quicker approval process |
| Fees | Higher processing fees, monthly fees, and potential setup fees | Lower processing fees and fewer additional charges |
| Reserve Requirements | Often requires a reserve fund to cover potential chargebacks and fraud | Typically no reserve requirements |
| Chargeback Rates | Higher tolerance for chargebacks due to the nature of the business | Lower tolerance for chargebacks |
| Account Stability | Accounts may be more susceptible to closure or restrictions | Generally, more stable accounts |
High-risk merchant accounts deliver powerful advantages that basic accounts can’t match — from sophisticated fraud prevention and global payment routing to specialized chargeback protection systems that protect and scale your business in challenging markets.
Pros & Cons of a High-Risk Merchant Account
Most businesses focus on higher fees and stricter requirements. However, astute merchants understand that the built-in protections of high-risk merchant accounts actually lower operational costs in volatile markets.
| High-Risk Merchant Account Advantages | High-Risk Merchant Account Disadvantages |
|---|---|
| Ability to accept payments | Higher processing fees |
| Access to specialized services | Stricter underwriting and review processes |
| Enhanced security measures | Potential for account suspension or termination |
| Improved customer experience | Limited choice of payment processors |
| Growth potential | Increased risk of chargebacks |
E-Complish’s high-risk merchant accounts unlock powerful capabilities: robust fraud prevention, strategic chargeback management, and global payment solutions. These advanced features protect your business and give you a competitive edge. Get a demo now!
Challenges Faced by High-Risk Merchants
If you’re running a subscription service, CBD business, or digital marketplace, you’ll quickly discover that payment processing comes with its playbook. As a high-risk merchant, you operate in a financial landscape where standard banking rules don’t cut it.
Most mainstream processors will show you the door, while those who welcome your business charge a premium. You’ll also need to provide detailed volume projections, cash reserves, and processing history. Even after you’re set up, your account lives under a microscope. One surge in chargebacks or suspicious transaction patterns could cause instant suspension.
How to Navigate Payment Processing as a High-Risk Business
Understanding the landscape of high-risk processing helps you build stronger financial infrastructure and protect your revenue streams. Here’s your roadmap to navigating payment processing confidently:
- Understand Your Risk Profile: Know why you’re labeled high-risk – this insight helps you tackle industry challenges head-on.
- Research Payment Processors: Target processors who specialize in your industry. Examine their reputation, stability, and support services.
- Prepare for Application and Underwriting: Gather comprehensive business documentation, financial records, and processing history.
- Secure Payment Processing: Implement robust payment systems with multiple backup processors and fraud prevention tools.
- Maintain Compliance and Minimize Risk: Set up continuous monitoring systems for chargebacks and suspicious transactions.
Remember, your success depends on staying ahead of regulatory shifts and treating risk management as a core business strategy, not an afterthought.
How to Choose a High-Risk Merchant Account Provider
Picking your high-risk payment processor shapes every aspect of your revenue stream. Avoid the obvious choices and look for providers who understand your specific market dynamics.
- Target processors who’ve handled businesses like yours: They should speak your industry’s language and not promise generic solutions.
- Dissect the fee structure: Look beyond the basic rates to monthly minimums, reserve requirements, and early termination costs.
- Verify their security stack: PCI compliance is the starting point; ask about their fraud prevention tools and chargeback management systems.
- Track their merchant retention: Reach out to businesses they’ve served for over a year, not just their showcase clients.
With a focus on industry-specific solutions and established risk management protocols, E-Complish exemplifies the type of processor that can help you overcome these challenges.
E-Complish: Your Secure High-Risk Merchant Account Solutions
As a trusted payment processing provider, E-Complish specializes in high-risk merchant account solutions for businesses facing unique challenges. We understand that industries like e-commerce, CBD, gaming, subscription services, and others require unique payment processing to operate smoothly and securely.
Our comprehensive services include chargeback protection, fraud prevention, and tailored payment solutions that help protect both merchants and customers. We work with multiple banking partners to ensure competitive rates and flexible terms for high-risk businesses.
Reach out to us today for a personalized consultation to maximize your revenue potential.
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FAQs About High-Risk Merchant Accounts
Why are high-risk merchant accounts more expensive?
How can I improve my chances of getting approved for a high-risk merchant account?
To increase approval odds for a high-risk merchant account, maintain clean banking records, provide detailed financial documentation, and demonstrate strong fraud prevention measures. A solid credit history, transparent business model, and proven track record of managing chargebacks will also strengthen your application.
How long does it take to get approved for a high-risk account?
High-risk merchant account approval typically takes 1-2 weeks, depending on the processor and industry. Underwriting requires thorough business documentation review, credit checks, and risk assessment. Complex applications or incomplete paperwork can extend this timeline.
Will rates ever go down after a high-risk merchant account is approved?
Yes, rates can decrease over time as merchants build a solid processing history with low chargeback ratios and consistent transaction volumes. Most processors review account performance after 6-12 months of stable processing and may adjust rates for reliable merchants.
Marc Hopkins
Groomed in the credit and collection industry since 1990, Marc quickly advanced into credit and collection management with a large…