Information About High Risk for Merchant Accounts
Merchant Accounts for High Risk Industries
High risk industries are those that are considered to have a higher likelihood of chargebacks, fraud, regulatory scrutiny, or other financial risks. Because of these factors, businesses in these industries often face challenges when obtaining merchant accounts or other financial services. An industry is typically considered high risk by financial institutions and payment processors due to a combination of factors that increase the likelihood of financial loss, legal issues, or reputational damage.
Factors Indicating High Risk for Payment Processing
High Chargeback Rates
A known high incidence of credit card charge backs, due to a variety of reasons
Legal and Regulatory Challenges
Frequent changes in legal status or increased scrutiny from regulators
Frauds and Scams
Higher likelihood of fraudulent activity or scams and businesses with a high incidence of cyber fraud
Reputational Risks
Public perception or moral objections to business activities
High Value Transactions
Large, infrequent transactions that are more susceptible to fraud
Financial Instability
Businesses with inconsistent cash flow or financial difficulties
Business Model Risks
Recurring billing or subscription models that may lead to disputes or cancellations
High Risk Products or Services
Products that pose health, safety, or legal risks
Industry Reputation
Negative industry-wide reputation leading to heightened scrutiny or avoidance by payment processors
Complex Supply Chains
Industries with complicated or opaque supply chains that increase the difficulty of verifying product authenticity or legality
Unstable Market Conditions
Sectors where rapid changes in technology or consumer behavior can lead to business failure
Emerging Industries
New or emerging industries without a long track record, making it difficult for financial institutions to assess risk
Frequently Asked Questions
A high risk merchant account is a type of payment processing account designed for businesses that operate in industries deemed high-risk by banks and financial institutions. These industries typically face higher rates of chargebacks, fraud, or regulatory scrutiny.
Your business may be classified as high-risk due to several factors, including the industry you operate in, high chargeback ratios, large transaction volumes, or dealing with products/services that have legal or regulatory complexities. Businesses with a history of financial instability or poor credit may also be labeled high-risk.
High risk merchants generally face higher processing fees due to the increased risk that banks and payment processors assume. These fees can include higher transaction rates, monthly fees, and chargeback fees. However, these costs are necessary to secure reliable payment processing services that cater specifically to your industry’s unique needs.
Switching from a high-risk to a low-risk merchant account is challenging and uncommon. The classification depends on the nature of your business and its associated risks. However, improving your business’s financial stability, reducing chargebacks, and maintaining a good relationship with your payment processor can lead to better terms and potentially lower fees, though the high-risk label may remain.
Using a standard, low-risk merchant account for a high-risk business can lead to several issues, including account freezes, withheld funds, or even account termination without notice. This can disrupt your cash flow and damage your reputation with customers. A high-risk merchant account is specifically designed to handle the challenges of your industry, ensuring stable and secure payment processing.
