When businesses accept payments online, they often need merchant accounts to process credit and debit card transactions. For most companies, this is a straightforward process, but if you operate in a high-risk industry, the situation can be a little more complicated. Merchants in sectors like CBD, adult content, online gambling, and nutraceuticals are considered a higher risk for payment processors due to chargebacks, fraud, or legal complications. As a result, these businesses may face higher fees and stricter requirements when applying for a merchant account.
Understanding the fees associated with high-risk merchant accounts is crucial for budgeting and ensuring that your business stays profitable. In this article, we will break down the types of fees you are likely to encounter, how they work, and why they are higher than those for low-risk merchants. We will also provide practical examples to help you understand what you’re paying for.
What is a high-risk merchant account?
Before diving into the fees, let’s quickly define what a high-risk merchant account is. A high-risk merchant account is a type of payment processing agreement that businesses in industries deemed high-risk enter into with payment processors. These businesses typically face a greater chance of chargebacks (when a customer disputes a transaction), fraud, or non-compliance with industry regulations.
Common industries considered high-risk include:
- CBD and Cannabis: Due to varying regulations across different states and countries, CBD and cannabis businesses are often classified as high-risk.
- Online Gambling and Gaming: This industry is frequently flagged due to its association with large sums of money and the potential for fraud or addiction issues.
- Adult Content: Payment processors are cautious with businesses in the adult entertainment industry, which can sometimes be linked to fraud or illegal activities.
- Nutraceuticals and Supplements: These businesses can face legal challenges or high chargeback rates, leading to their high-risk status.
Since these businesses face additional challenges, they are charged higher fees to account for the increased risk to payment processors.
Types of high-risk merchant account fees
High-risk merchants are often shocked when they see the fees that come with opening and maintaining a merchant account. These fees can be broken down into several categories, each serving a different purpose. Here’s an overview of the main fees you may encounter:
1. Application fees
Most payment processors charge a fee just to apply for a high-risk merchant account. This fee can range from a few hundred dollars to over $1,000, depending on the payment processor. The application fee helps cover the costs of assessing your business’s risk level, checking compliance with regulations, and evaluating the likelihood of chargebacks.
For example, a CBD company might pay an application fee of $500, which covers the processor’s cost to review the legality of their business, the stability of the company, and the potential for disputes. Keep in mind that not every high-risk business will be accepted, and paying the application fee doesn’t guarantee approval.
2. Setup fees
Once your application is approved, you may be required to pay a setup fee to get your merchant account up and running. This fee can range from $100 to $500, depending on the complexity of your business. Some high-risk merchant accounts require additional layers of security or specialised software, which contributes to these higher fees.
For instance, a company selling online gambling services may need to integrate specific fraud protection systems into their payment processing system, driving up setup costs.
3. Monthly account maintenance fees
Every merchant account, including high-risk ones, comes with monthly maintenance fees. These fees can vary greatly depending on the provider, but generally range from $25 to $100 per month. The maintenance fee covers the ongoing costs of managing your account and ensuring that everything runs smoothly.
High-risk merchants may face slightly higher monthly fees than their low-risk counterparts due to the increased monitoring required to detect fraud, chargebacks, or other financial issues. For example, a nutraceutical company could expect a monthly maintenance fee of $75, while a business in a low-risk sector might pay just $30.
4. Transaction fees
Transaction fees are the charges levied for each sale made through your merchant account. These fees typically include a percentage of the sale plus a fixed amount per transaction. For example, a merchant may pay a fee of 2.9% + $0.30 per transaction.
For high-risk merchants, these transaction fees are usually higher than for businesses in low-risk sectors. Transaction fees for high-risk businesses may range from 3% to 5%, depending on the risk associated with the business type and the payment processor’s policies. If a high-risk merchant processes a $100 sale, they may pay $3.50 to $5 in transaction fees, compared to the $3.20 charged to low-risk merchants.
5. Chargeback fees
Chargebacks occur when a customer disputes a transaction, and if the dispute is upheld, the business must refund the amount. High-risk merchants often face a higher volume of chargebacks, which can result in additional fees. A typical chargeback fee can range from $25 to $50 per occurrence.
High-risk businesses like adult content providers may experience frequent chargebacks, especially if their customers are dissatisfied with the product or service. This leads to payment processors imposing higher fees to cover the administrative costs of handling disputes. For example, a business in the gambling sector may have to pay up to $50 per chargeback.
6. Rolling reserve fees
To mitigate the risk of chargebacks and other issues, many payment processors require high-risk merchants to set aside a portion of their revenue in a rolling reserve. This is a percentage of your sales (usually between 5% and 15%) that is held by the processor for a period of time before being released to you.
For example, a CBD business processing $100,000 in sales may be required to maintain a $15,000 rolling reserve. This reserve helps the processor cover potential chargebacks or fraud, but it can be a significant cash flow burden for the merchant.
7. Refund fees
Some processors charge fees when a customer requests a refund. While this is not always the case for low-risk merchants, high-risk businesses may face these fees more frequently due to higher volumes of disputes and refunds. Refund fees can range from $10 to $30 per transaction, depending on the processor.
For example, an online gambling business that processes refunds due to dissatisfaction may be charged $20 for each refunded transaction.
Why are these fees higher for high-risk merchants?
You might be wondering why high-risk merchants have to pay more. The main reason is that they pose more risks to payment processors, including the potential for fraud, chargebacks, legal complications, and regulatory issues.
Here are a few reasons why these businesses face higher fees:
- Higher Chargeback Rate: High-risk businesses often experience higher chargeback rates, which means processors need to protect themselves against potential losses.
- Increased Fraud Risk: Payment processors have to take extra steps to protect against fraud, which leads to additional costs for monitoring and verification.
- Legal and Regulatory Compliance: Certain high-risk industries, like CBD or gambling, are subject to complex and varying regulations, and processors need to ensure compliance with these rules, which comes at a cost.
- More Monitoring: High-risk businesses require more frequent and intensive monitoring to ensure that they comply with the terms of their merchant account agreement.
How to minimise your High-Risk Merchant Account Fees
While high-risk fees are unavoidable, there are steps you can take to minimise their impact:
- Choose the right payment processor: Different processors offer varying fee structures, so it’s important to shop around and find the one that offers the best terms for your business.
- Reduce chargebacks: By offering excellent customer service, clear product descriptions, and easy-to-understand billing, you can help reduce the likelihood of chargebacks, which will reduce your fees.
- Implement fraud prevention systems: Investing in fraud prevention tools like AVS (Address Verification System) and CVV (Card Verification Value) checks can help reduce fraud, potentially lowering your fees.
- Negotiate fees: Don’t be afraid to negotiate with your payment processor. If you have a good track record and a steady sales volume, you might be able to lower your fees over time.
Bottom Line
High-risk merchant account fees can be steep, but they are a necessary part of doing business in industries that face more challenges than others. By understanding the different types of fees involved and why they are higher for high-risk merchants, you can better prepare for the costs associated with payment processing.
Whether you’re operating a CBD business, an online gambling site, or selling nutraceuticals, knowing what you’re paying for will help you manage your expenses and make informed decisions about your payment processing needs.
Not sure if your current payment processing setup is optimised for your business? Our experts can help you review your merchant account fees, optimise chargeback prevention strategies, and ensure compliance with industry regulations.
Book a free consultation today to find out how we can help you reduce costs and improve your payment processing.
For more industry insights, check out our article “New Guidelines for Adult and CBD Businesses: Staying Compliant in 2025”
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.
