What is Considered a High-Risk Merchant?

We get a lot of surprised business owners that call us when they find out they are considered high risk when they apply for a merchant account in order to accept credit cards. All they are looking to do is to grow their business – since most people want to pay with a credit or debit card instead of cash, and they will generally pay more to boot.

Business owners come to us and want to know what is considered a high risk merchant? We understand where they are coming from. Being considered high risk comes with a whole new set of problems. It usually entails a lot more red tape, hoops to jump through and generally, higher fees and more stringent contract terms from most merchant account providers.

They want to know if it’s even worth accepting credit cards as a high risk business.

What is considered a high risk business?

A high risk business is any business that is viewed by banks as having an increased risk of losing money. While any business that operates within the “adult” sector is always considered high risk, other merchant service providers will generally determine whether you are high risk or not, depending on some of the following factors.

Businesses in a high risk industry usually include those that have a:

High return rate
High employee turnover rate
Have an increased risk of fraud
High average ticket prices
Chargebacks that are 1% or greater.
Bad personal credit history
No business credit history
No upfront collateral.
Start ups and new businesses
Low revenue business
Offshore businesses that operate in the United States

What are some examples of high risk businesses?

Business in the travel industry, e-commerce, software, and CBD merchants all are considered high risk businesses even though they are completely legitimate businesses. If your business relates to anything adult related, it will be considered high risk. If there is a higher risk of fraud, chargebacks, or if your average ticket cost is on the higher side, you’ll be considered high risk and have to apply for a high risk merchant account.

It typically takes a lot longer to become approved for a high risk merchant account and there are so many hoops to jump through and the in depth scrutiny that is required on the part of the merchant services provider. You have to provide a full credit history when applying for a high risk account, so be prepared with lots of documentation. The merchant service provider will take an in-depth look at your transaction history, your credit history, your banking history as well as the nature of your industry.

Why is it so hard to get a high risk merchant account for my business?

The short answer is because it’s risky – any bank that will provide you with a merchant account is taking a big risk because they could potentially be losing a lot of money. And no one wants to lose money.

Fraud and Chargebacks

For example, the chargeback rate of your industry is part of what is considered in a bank’s decision to open a high risk merchant account for you. Some industries tend to have a higher chargeback rate than others.

Consider this. Over half of all chargebacks are due to friendly fraud – which means that customers consume the item or vacation trip but claim they never received it. They call their credit card company and initiate a chargeback.

It is extremely difficult and expensive to prosecute friendly fraud and so many business owners do not end up seeking legal action. Travel industries have a high rate of chargeback for this very reason. If your customers take a trip that costs thousands of dollars only to initiate a chargeback, you lose out on all that money and it goes against your business history.

So many high risk merchant account providers will try and offset their risk of losing out on money. They will typically charge significantly higher transaction fees than they would with standard accounts. They might lock you into long term contracts with exorbitant early termination fees, too.

It can be frustrating because you don’t want to feel stuck, but you’re not sure what to do.

If you’re a business that has a fantastic credit history that checks all the right boxes, and it’s only your particular industry that is considered high risk, you still have to go through the tedious process of application. You will have to work extra hard to prove that you deserve the chance to grow your business and accept credit cards as payment.

Unfortunately, many credit card processing companies will charge much higher rates and fees to high risk businesses and merchants so that they make more money. And while we know on one hand that they are trying to offset some of their assumed risk when providing a high risk merchant account, we think our high risk merchants deserve a better way to process than being saddled with high swipe fees and long term contracts.

What makes Shift Processing different?

We know the ins and out of the high risk industry. We take the time to understand you and your business, and we think you should be treated just like any other merchant out there – high risk business or not. With a 99% approval rate, there is a great chance you’ll be approved for a high risk merchant account in as little as 72 hours.

You’re ready for a better way to accept credit cards, reach out to Shift Processing today to see how we can help you keep more of your hard-earned money.