High Risk Merchant Accounts

June 7, 2023

High Risk Merchant Account Guide

Finding the best high risk merchant account is essential for businesses trying to operate in the high risk space. In any industry, ecommerce customers are used to paying with debit or credit cards so it’s important to have the right payment options.

What makes a company high risk?  The term is used by banks and processing companies to categorize certain verticals or businesses that present different types of predictable challenges. These may include chargebacks, legal restrictions, age verification, and more.

High Risk Merchant Accounts and Payment Processors – Key things to know

High risk payment processors are the companies who help you establish a merchant account in a high risk industry. When customers shop and make purchases on your site, the funds are deposited to your merchant account. These transactions are usually with a credit or debit card. However, new payment types such as cryptocurrency is opening up new ways to pay.

You may be wondering why certain industries are high risk, and what this has to do with customers buying something from your shop. The risk lies in the fact that certain predictable issues surface in different types of businesses.

The major concerns banks identify include fraud, chargebacks, and unique product listings. Fraud takes many forms. It can be someone using another person’s credit card, or claiming they received a faulty product. Chargebacks happen when a customer goes to their bank (the one that issued their credit card) and makes a claim to reverse the payment. Lastly, items such as CBD, Vape, Firearms, or even Adult Products, have industry-specific concerns for banks.

In order to qualify for a merchant account and to get lower fees and fast approvals, you’ll want to prove your company has lower risk. To do this, you should establish a history of payments. This means sharing your last few months of transactions with the high risk processing company. They’ll be able to see your chargebacks and the amount of revenue processed in your current account. With this information they can lower your rates and negotiate on your behalf to reduce the costs and fees.

Table of Contents:

• What Is A High Risk Merchant Account?
• Best High Risk Merchant Account Providers
• Why You May Need A High Risk Merchant Account
• Types Of High Risk Merchant Accounts
• How Does A High Risk Merchant Account Work?
• Low Risk Vs. High Risk Merchant Accounts
• How To Find A High Risk Merchant Account
• High Risk Payment Gateways
• High Risk Merchant Account Approval
• Chargebacks and High Risk Businesses

What Is A High Risk Merchant Account?

A high risk merchant account is a type of bank account that is custom-made for companies in the high risk space. There are different criteria for the type of account you’re looking for, but they all take into consideration potential risks.

Moreover, a processor may look at your product or service and determine there is a higher chance of fraud associated with it. In this case, the risk is that the merchant may incur higher chargebacks or friendly fraud transactions. Banks have to offset the extra resources your account requires by categorizing your account appropriately.

Are You In A High Risk Industry?

High risk might also mean that you’re within a legally restrictive industry. For example, CBD, cannabidiol, and hemp laws change constantly. Additionally, each state has its own regulations when it comes to the sale and association of related products. Many states require specific testing standards which, if difficult to obtain, can cause difficulty in your business growth.

Best High Risk Merchant Account Providers

The top merchant account providers are equipped with their own key offerings. Some cater to instant approvals, while others will allow higher chargeback rates. In addition, there are merchants who work with offshore accounts while some may focus on national CBD regulations. Each business has a credit card payment processing solution that is the best for their demands.

How To Identify The Best Merchant Services

Aggregate Payment Services (Low Risk)

PayKings

PayKings is consistently ranked as one of the best high risk merchant accounts.

We are lauded for being one of the first companies to offer credit card processing solutions in new and changing industries.

Historically, we have the means to quickly approve and merchant accounts for companies in unique high risk industries. Whether you have higher chargeback rates, subscription billing, vape accounts, or are categorized as high risk for any reason, we work with you to find the best merchant solution possible for your business needs.

High Approval Rates

With international partnerships and a network of resources, PayKings offers end-to-end solutions and flexible pricing. We enable merchants to accept nearly all types of electronic payments including major credit cards: MasterCard®, VISA®, American Express®, Discover®, Diners Club International®, signature debit cards Gift and loyalty cards, and even for a high risk ACH merchant account.

Why You May Need A High Risk Merchant Account

Offshore or International Merchant – If your company or the business owner operates internationally, you may be considered high risk. You can determine your offshore account status by answering two major questions.

1. Where is your corporation registered? Establish your business in the country you want an account in. If you are trying to set up a merchant account in the USA and your processing volume is under one million dollars, you’ll need to have a business there.
2. Does the signer have a social security number? USA citizenship is required in most cases, even for high risk accounts. If you want to open your account with a USA bank, the signer should be a legal resident and have a social security number at minimum.

Bad Credit

A low credit score often presents difficulties for people and businesses trying to open new accounts. You can offset your credit by showing you have steady sales volume or a large sum of cash assets.

Friendly Fraud

This type of fraud is specific to online merchants and occurs when a product is returned for the wrong reasons. Here are a few situations where this type of fraud may occur:

• The customer claims an item never arrived. If you have tracking or shipping confirmation this may help reduce these claims.
• They say the product isn’t what they ordered or is not what they expected. One way to reduce this is by making a customer pay for return shipping.
• The customer files a chargeback through their credit card company claiming they didn’t receive a refund.
• They claim someone else was using their credit card and they didn’t approve the order
• The customer cancels the order after the item arrives.

High Cost Products – Many high risk industries have unique payment needs. High cost products like jewelry, auto parts, or machine equipment have high dollar transaction amounts. When sold consistently over long periods of time, you can show that you have less risk.

Types of High Risk Merchant Accounts

There are many different types of industries that can fall into the high risk category. Some are qualified as having branding conflicts with banks, others may have legally restricted items. Below are some examples of businesses that meet the standard.

• Adult – Including pornographic sites, escort services, phone chatting, dating, membership, and toys.
• Airlines & Booking
• Attorney & Legal Services
• Auto Warranties
• Background Checks
• Bad Credit
• Business Consulting
• Business Opportunities
• CBD Oil & Edibles – With COA’s showing THC lower than 0.3% this includes flowers, gummies, CBD for pets, and more
• Coins & Collectables
• Continuity Billing – Ongoing billing commonly used for software sales or other types of continued payment services
• Credit Monitoring
• Credit Repair
• Dating – Dating services or apps
• Debt Collections
• Fantasy Sports – Online gambling and fantasy football, soccer, baseball, basketball and more
• Firearms – Gun merchants selling firearm accessories online
• Gentleman’s Clubs
• Government Grants – Certifications or official governmental paperwork organizers
• Health & Beauty
• Hemp & Related Products
• High-Ticket Coaching – Conventions or public speaking and group consultation
• Male Enhancement
• Mail Order Products
• Memberships
• Marketing – Published media, advertising, newspaper, and online
• Nutraceuticals
• Online Gaming
• Pawn Shops
• Pay-day Lenders
• SEO and Digital Marketing
• Skin & Hair Care
• Subscription Boxes
• Travel
• Vape
• Web Design

As with any payment processing account, a high risk merchant account goes through an approval process. The first step in applying for an account is to find a company with experience that caters to your industry. Aggregate providers like Stripe and Square offer fast approvals, but they don’t allow many types of high risk businesses. Often, they will instantly approve your application, but close down your account after a few weeks once they vet your business.

After you select a high risk payment processor, you’ll fill out your application. The application will ask for information like your last six months of sales volume, chargeback rate, and other critical information to see which bank is most suited to take on your business needs.

Merchant Account Underwriting

Next is the underwriting process. This is the final stage before account approval. It consists of the bank reviewing your information and collecting any additional documents they require. Furthermore, these documents can include items like your driver’s license, or certificates of approval for product testing that may be necessary for your products. In addition, they will take a look at your website and make sure its language and security is consistent with regulations.

Once you’re approved, it will be ready for processing payments online. You can start marketing on your website and bringing new customers through the buying cycle. If they use a debit or credit card, then you’ll see the payment in your new account.

Low Risk Vs. High Risk Merchant Accounts

Low risk businesses are regular companies that don’t fall into the high risk category. Consequently, if your company sells products online, has few chargebacks and isn’t part of any of the previously mentioned high risk verticals, it’s likely you may not even know you’re in the low risk category. Here are some ways to compare low risk vs. high risk businesses.

How to Find a High Risk Merchant

Discovering the right high risk payment processor takes time. Your first step will be to understand your own business and know the requirements you’re looking for. Moreover, if you were just dropped from a merchant account like PayPal, they may have informed you of the reasons they shut down your processing. For example, it may be that your product base creates a conflict of interest with their terms or conditions. Alternatively, they may have seen too many returns or chargebacks. Whichever reason your company is deemed as high risk, will be the same one you should be searching to offset with your new account.

The process begins online. Unlike low risk accounts, there are few companies that have the history and expertise in the high risk space. Many of them formed relationships with banks and payment gateways that allow them to place companies accordingly. Therefore, a high risk ISO can work as a direct resource or as a liaison to the financial entity your account will connect to. Search for companies that have good customer service, and clearly identify your business type on their industry list.

How To Apply For A Merchant Account

Fill out a brief form or questionnaire on their site. Doing this will put you in touch with an agent who can walk you through the application process. They work with you via email and over the phone to organize and collect essential documents that the bank will review. The merchant company acts as your representative and lays out each of the requirements for your business.

What to Look For In a High Risk Merchant Account

With such a variety in credit card processing providers, it’s important to understand which qualifications you should look for. Here are some of the most important attributes you should be shopping for in your merchant account provider.

• Fast or instant approval
• Competitive rates and low fees
• Experienced sales agents
• Superior customer service
• An understanding of your industry
• A merchant account in your country of application
• Quality ratings and reviews
• History of successful applications
• A large network of banking connections
• An easily integrated payment gateway
• Credit card processing service knowledge
• ETA Certification
• Awareness of MATCH list options
• Solutions for your monthly volume
• The ability to discuss fees over time
• Notable partnerships
• Marketing resources and solution connections
• Chargeback knowledge

High Risk Payment Gateways

The term high risk payment gateways is often used interchangeably with high risk merchant accounts. However, these two terms have different technical meanings.

A payment gateway is a software built for ecommerce specific platforms to authorize payments to business owners on behalf of their customers. It connects to a payment processor such as PayKings which passes that card information and order data to credit card processing platforms such as TSYS or First Data. They connect to the customer’s bank account and securely take the money from customers and send it to the merchant’s bank account.

Payment gateways work similarly to digital versions of credit card processors. This type of merchant service is software that you can plug into your business’s ecommerce platform or website so that your clients can make purchases directly from your business online.

High Risk Merchant Account Fees

What are some of the fees associated with this kind of account? 

With a standard high risk merchant account, the fees that you can expect to pay are typically at a higher discount rate. Depending on your sales volume the processing fee ranges from 2% – 4%. The transaction fee will be around $0.30.

Beyond this, there is a charge specific to high risk accounts called a reserve. This is put in place by banks to make hedge risk and onboard the account. The fee is at the bank’s discretion and is not decided by a company like PayKings. This reserve usually covers from 5% – 10% of the transactions. It’s not a fee, but money that is set aside in a savings account in case it’s needed to mitigate against any chargebacks that could occur.

Do High Risk Merchants Pay Higher Fees?

A card-present or low risk account as you would typically experience at a grocery store or at a restaurant will always have lower fees. In contrast, a high risk merchant account which is often used online has somewhat higher fees. If you have low volume (according to banking standards), or under $100,000 a month you’re looking at a normally around a 3% discount rate plus incurring whatever interchange costs are on top of that.

How Can I Lower My Fees?

One of the easiest ways to lower your fees is to show that you’re a merchant in good standing based on your processing history. This way you’ll have less risk and banks will determine your new processing rates. Lower fees incentivize merchants to bring stay with the same bank and increase the longevity of their account. Your sales history proves to the bank that you are not as high risk as once thought.

Another facet that lowers your rates over time is account duration. If you have successfully operated your business for many years, banks will see that your company is a safe bet. Contact your payment processing representative to see if they can help you lower your fees once you have higher sales volume and a long history of consistent low risk business practices.

Instant Approval

Depending on your type of business, there are different requirements banks ask for to open your account. For some verticals, the application travels directly to the bank. Next, they use automated tools to instantly approve the account. This however is not common as there are many factors in this equation and banks prefer to look at accounts on a case-by-case basis. In the high risk space, it takes longer to collect and process the paperwork required to open your account. The standard time is usually between three to five business days.

Issues Getting Approved

Merchants may sometimes have issues in the approval process. The thing to keep in mind is that the bank is simply in the business of building your story. Additionally, they are looking for analytics and data to put together an understanding of what they can expect from your business. The more responsive you are the faster the banks process your paperwork. In our experience at PayKings, one of the main issues that slow down the application process is when the bank is waiting for information from the merchant.

Changing your website or business model is also a cause for concern. The bank wants to approve your account as your business stands at present. Adding a new product or changing key components of your site means they will have to take these new features into consideration. If you want to implement changes, do this before going to the bank with the request.

Keep Your Information Accurate

Sometimes there are inaccuracies in the information provided. For example, it’s important to have a physical address listed as your place of operation. Don’t use a PO box or a virtual office address as this can come up during the underwriting process as an error. There needs to be a physical location because sometimes a bank will do site inspections. Keep the information specific and accurate to avoid delays.

Post Approval

After approving your high risk merchant, you’ll want to take a few additional steps. First, you will receive login credentials from your gateway. Here, you can view sales volume, fees, and chargeback. If you have chargebacks, you’ll be able to respond to them there.

There will be an approving bank associated with your account. You will want to contact your respective bank who has a portal to view and interact with your account. Next, for the sake of longevity keep the communication lines open with the bank and discuss any website adjustments or product changes. If you increase the ticket amount of your products, you may pose a higher risk, contrastingly, increasing in steady sales volume over time lowers your risk. Either way, you should set aside invoices and share the information with your bank.

Chargebacks and High Risk Merchant Accounts

Merchants who accumulate multiple chargebacks are at risk of losing their payment processor. This is why many companies with a higher tendency to have chargebacks, utilize high risk merchant accounts. If you’re just starting a company, then the issue of returns or the dreaded chargeback is not the first item on your mind. However, after your sales increase, you’ll find the occasional unhappy or deceitful customer who is trying to take advantage of your online store.

Chargebacks vs. Refunds

The difference between a chargeback and a refund is that a refund goes through the merchant, whereas a chargeback goes through the bank. In most cases, a customer makes a chargeback request because they didn’t receive a refund when they asked for one. The issue is then up to the bank to resolve. They will collect information and figure out whether the chargeback is appropriate. The merchant doesn’t have much of a choice in the matter after they have decided to take action

Chargebacks Can Cost You

The cost of a chargeback can grow over time and present a bigger issue to a merchant than simply a refunded item. For every chargeback there’s a fee. This fee can range from twenty to one hundred dollars per transaction. If chargeback rates rise over a certain threshold, then you may be at risk of getting your account shut down and possibly put on the MATCH list.

The good news is, high risk merchants work with chargeback partners to help merchants deal with these issues. Chargeback companies can help a company put together a case and craft disputes which allow them to have more say in the matter. After the issuer receives the evidence, you may win a dispute. Although this doesn’t bring down your chargeback rates, it will help you recover lost profits which are invaluable to your long term growth.