Digital Payments and High-Risk Merchant Account
With digital payments growing every year and cash payments in constant decline, it has become common for businesses to search for the most affordable payment processing solutions.
Although payment service providers appeal to a wide range of industries, there are certain businesses they treat more hesitantly. Often, these belong to high-risk sectors that carry inherently higher chances of fraud, chargebacks, or other financial risks.
If your business falls into a high-risk category, finding the right payment processor can be a challenge. Who decides whether a business is ‘high risk’? What factors contribute to this classification? These questions are explored in this article to help you choose the best payment processor for your business.
High-Risk Merchant Account
High-risk merchant accounts are set up for enterprises considered to have a higher likelihood of debit, fraud, or other financial risks. If your business operates in a high-risk sector, you’ll need this type of account to process credit and debit card payments.
However, no universal system or authority defines what constitutes high risk in the payment processing sector. Each payment processor and bank has its own risk evaluation criteria.
Certain payment service providers may declare upfront that they do not work with particular industries, while others may collect more detailed information about the business to determine whether or not they can accept your application. Ultimately, it comes down to each provider’s risk management protocols.
Factors That Signal That a Merchant Is High-Risk
Some Industries are more susceptible to risk and can be automatically flagged as high risk. Some examples include:
- SEO services
- Multi-level marketing (MLM) Multi-level marketing (MLM)
- Nutritional and nutraceutical supplements
- CBD products, e-cigarettes, and vape E-cigarettes and vape
- Tasers and Taser guns
- Credit repair services
- Adult products and services
- Pawn shops
- Technical support services
Besides this industry classification, several other factors can increase your risk profile and may be considered high risk:
- Businesses selling products in a legally gray area or controversial sector
- Start-ups with no payment processing history
- Sectors that are tightly controlled by government regulation
- Poor credit scores or a history of loan defaults
- If your business relies heavily on international transactions, the unpredictable nature of international markets can increase your risk score.
Do High-Risk Accounts Differ from Regular Accounts for Payment Processors?
Being classified as high risk comes with its challenges. A processor may simply deny your application or implement additional measures to reduce the suspected risk. The following describes how high-risk accounts differ from regular accounts:
Longer application process
Whenever you apply for a high-risk merchant account, be prepared for a more thorough verification process. Payment processors often request detailed information to evaluate your business’s financial history, partnerships, and even your personal credit.
Higher payment processing fees
For low-risk businesses, processing fees can be around 0.3% above the interbank rate. For high-risk businesses, however, these fees can be as high as 1.5% plus the interchange, depending on the processor.
Cash reserve requirements
Many processors may keep a part of each transaction as a ‘reserve’. This could be structured as follows:
Rolling Reserve – a portion of each transaction is held for a set period of time before being released.
Capped Reserve – the funds are held until a predetermined amount is reached, after which the reserve requirement ceases.
Initial Reserve – a fixed amount is immediately withheld from the merchant’s account, sometimes before any transaction is processed.
Bigger Chargeback Fees
If your business has a high chargeback rate, you may face additional fees, which can range from $20 to $100 per chargeback. This is common in industries like garments, where chargebacks or disputes are more common.
Credit Card Processing Volume Caps
Some processors may impose volume limits, meaning your business can’t process transactions that exceed a certain threshold. This is meant to de-risk, as high volume can often indicate instability or fraud activity.
Extra Requirements
For businesses dealing with age-restricted goods, for example, processors may require specific tools (e.g. age verification) to ensure compliance. Your processor may not approve your account until these requirements are met.
What To Do If You’re a High-Risk Business and Need a Payment Processor
The following are tips to help you find the right payment processor for your high-risk business:
Maintain cash – Payment processors simply want to make sure your business is financially stable, so maintain sufficient cash in your business’s bank account.
Reduce returned debits – Look at the reasons behind any returned debits, and try to reduce them by improving product descriptions, delivery times, and customer service.
Be transparent – Disclose all relevant information during the application process. Concealing details can damage your credibility.
Prepare your documentation – Prepare your bank statements, tax returns, and other financial documents as they are likely to be requested.
Follow your processor’s guidelines to reduce risk.
Tips for Choosing a High-Risk Merchant Account
In order to find the right provider, start by putting together a list of payment processors known for dealing with high-risk industries. Some of the top providers include:
Once you’ve made your initial selection, consider the following questions:
- How much experience do they have in working with your specific industry?
- What is their processing timeline, and how fast are the payments deposited?
- Do they have cash reserve requirements?
- Are they transparent about fees, including any early termination penalties?
- Do they offer customer support and provide the necessary equipment, such as POS terminals?
Bottom Line
Being labeled as a high-risk business doesn’t mean you’re out of options – it just means you need to be more assiduous in finding the right payment processor. Some processors have easy checkpoints of entry but might suddenly close your account later.
Read our article, “The Best High-Risk Merchant Accounts for EU Merchants in 2025” for more useful insights.
Choose to consult with our experts today. The right guidance and specialized consultation can help you save significant financial and energy resources in the long run.
Contact us to make informed decisions with confidence.
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.
