High-Risk Merchant Accounts
Payment processing fees are an unavoidable cost for most businesses, especially for high-risk merchants. Whether you’re running an online gambling platform, dealing with CBD products, or managing a subscription-based service, you’ll encounter higher fees due to the nature of the business. These fees can add up quickly, eating into profits, making it harder to scale operations effectively.
For high-risk businesses, managing and reducing payment processing fees is essential. In this article, we’ll break down why high-risk merchants face elevated processing fees, discuss strategies to lower them, and explore alternatives that can help optimize these costs while maintaining secure payment systems.
Why Are Payment Processing Fees Higher for High-Risk Merchants?
Businesses in high-risk industries present a greater risk of financial loss, fraud, and chargebacks for payment processors. Here’s a breakdown of the key factors that contribute to higher fees for this merchant category:
- High-risk industries tend to have a higher rate of chargebacks—situations where customers dispute a transaction and request a refund. A high number of chargebacks signals to payment processors that the merchant’s business could lead to potential financial loss, causing them to increase fees to cover the risk.
- Many high-risk businesses, especially those in the eCommerce, adult entertainment and gambling industries, are more susceptible to fraudulent transactions. As a result, payment processors and banks factor this increased risk into their fee structures.
- Certain industries, like CBD products, travel agencies, and online gaming, are considered high-risk due to the nature of the products or services being sold. These industries often face regulatory scrutiny and a greater likelihood of customer disputes, further driving up payment processing costs.
- Many high-risk merchants might have inconsistent cash flow, lower credit scores, or a history of financial instability which increases the perceived risk for payment processors. To mitigate these risks, payment providers charge higher fees.
While there’s no way to fully eliminate these risks, businesses can adopt strategies to reduce their exposure to fees and better manage their payment processing costs.
Strategies to Reduce Payment Processing Fees for High-Risk Merchant Accounts
Although high-risk merchants can’t avoid payment processing fees entirely, there are several proactive strategies they can use to reduce costs and manage their financial burden more effectively. Below are some approaches:
1. Choose the Right Payment Processor
Selecting the right payment processor is one of the most important steps in minimizing payment processing fees. Some processors specialize in high-risk accounts and offer tailored solutions designed to reduce fees for these businesses.
When choosing a processor, consider the following:
Experience – Work with processors that have experience in your specific industry. These providers are more likely to understand the nuances of your business, helping them create a fee structure that is both competitive and manageable.
Pricing – Look for processors that offer clear and transparent pricing. Avoid processors that have hidden fees. The more straightforward the pricing, the better you can manage your expenses.
Flexibility – Some processors may be willing to negotiate fees, especially if you demonstrate steady transaction volumes. Larger transaction volumes can often lead to lower rates, so it’s worth exploring the possibility of negotiating your processing fees.
2. Implement a Rolling Reserve to Minimize Chargeback Risk
A rolling reserve is a common practice for high-risk merchants. This involves holding a percentage of your monthly sales in reserve, which can be used to cover chargebacks or disputes. Although it may feel like a significant upfront cost, a rolling reserve can reduce the overall risk for the payment processor, which could lead to lower fees over time.
The processor holds a small percentage (usually between 5-10%) of your daily transactions in a reserve account for a set period (typically 6 months to a year). If no chargebacks or disputes occur during this time, the funds are returned to you.
While this strategy doesn’t directly lower your fees, it can reduce the risk of your account being flagged for high chargeback rates, which could help keep your fees more manageable in the long run.
3. Optimize Chargeback Management
Chargebacks are a significant source of expense for high-risk businesses, as they often result in chargeback fees, lost revenue, and higher processing fees. To minimize chargebacks and the fees associated with them, implement the following strategies:
Refund Policies – Ensure that your refund and return policies are transparent and easily accessible to customers. A clear policy can help prevent misunderstandings and disputes that may lead to chargebacks.
Customer Support – Offering good and timely customer support can significantly reduce the likelihood of chargebacks. By addressing customer complaints or issues promptly, you can resolve disputes before they escalate to chargebacks.
Fraud Prevention Tools – Implement fraud prevention measures such as Address Verification Service (AVS), 3D Secure authentication, and transaction monitoring. These tools can help detect strange transactions before they occur, reducing the risk of chargebacks and related fees.
Dispute Management – In case of chargebacks, respond quickly and effectively. By submitting clear evidence to dispute unjust chargebacks, you may be able to reverse the decision and avoid additional fees.
4. Consider Alternative Payment Methods
High-risk merchants often face high fees associated with credit card processing. However, there are alternative payment methods that can help reduce fees while providing flexibility for your customers. Some of these methods include:
- ACH Payments which are direct bank-to-bank transfers and typically have much lower fees than credit card payments. Although ACH payments can take longer to process, they are a great option for businesses that want to avoid high processing fees while maintaining security.
- Digital Wallets such as PayPal, Apple Pay, or Google Wallet can provide customers with alternative ways to pay, often at a lower cost to the merchant.
- Cryptocurrency – for certain high-risk industries, accepting cryptocurrency payments can be an attractive option, as they often come with lower transaction fees compared to credit cards, though they can be volatile and require extra setup.
5. Optimize Transaction Methods
Another way to reduce payment processing fees is by optimizing the way transactions are processed. For example, card-present transactions (where the customer physically swipes or taps a card) tend to have lower fees than card-not-present transactions (such as online purchases).
In order to optimize your transaction methods:
- Encourage In-Person Payments or use mobile point-of-sale (POS) systems. These transactions typically have lower fees due to their lower risk of fraud.
- Batch Processing involves grouping transactions together and submitting them at once, rather than processing each payment individually. This can reduce processing costs, especially for high-volume businesses.
6. Review Your Merchant Account Regularly
Your business may evolve over time, and so should your payment processing strategy. Regularly reviewing your merchant account terms, fees, and usage can help you identify opportunities to cut costs. For instance, if your business grows and your transaction volume increases, you might be able to negotiate a better deal with your payment processor.
Also, keep an eye on any unnecessary fees (e.g., monthly maintenance fees, statement fees, or chargeback fees) and ask your processor to waive or reduce them if possible.
7. Leverage Payment Automation
Payment automation can streamline the payment process and reduce human error, which can lead to mistakes and chargebacks. Implementing an automated system that ensures accurate invoicing, timely payments, and consistent transaction reporting can reduce operational costs. With fewer errors, you’ll be less likely to incur penalties or higher fees from your processor.
Bottom line
While high-risk businesses face important payment processing fees, there are several strategies to help mitigate these costs. By choosing the right payment processor, negotiating fees, optimizing chargeback management, exploring alternative payment methods, and leveraging automation, high-risk merchants can reduce payment processing fees and improve their bottom line.
Ultimately, understanding the aspects and the components of merchant fees and staying proactive about fee management can help high-risk businesses thrive while minimizing unnecessary costs. With the right approach, you can keep your payment processing fees in check and focus on what truly matters: growing your business.
Contact us today and book a free consultation with our specialists today!
Check out our article “Best High-Risk Merchant Account Service Providers in 2025” to stay updated on the latest industry trends.
Disclaimer
Widelia and its affiliates do not provide tax, investment, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, investment, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Please consult https://widelia.com/disclaimer/ for more information.
