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High Risk Merchant Account
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In this chapter, you'll learn how to lower your processing rates as well as what types of merchants actually need a high risk merchant account.
We show you all the ways processors try to take advantage of your high risk business and how to get around all of the added fees that are rampant in high risk processing accounts.
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Understanding how Credit Card Processing can work for you!
The Complete Guide to Credit Card Processing is an in-depth explanation of how credit card processing works. This guide will help you evaluate and decide on the best merchant account without the false starts and missteps that others have fallen prey to in the past. Download your copy of the world's most-comprehensive guide on credit card processing
4.1 What is a high risk merchant account?
High Risk Merchant Account
- The ability of a high risk business to be able to accept credit cards as a payment option.
- A merchant of a business deemed high risk seeking the ability to accept plastic as payment.
- A term that certain processing vultures use to charge exorbitant fees to a merchant that wants to accept credit cards.
Of the definitions above, all three are unfortunately true today.
There are businesses that are higher risk than others, and a merchant processor takes on more risk when offering them a high risk merchant account.
That means that there are traditionally higher rates and fees to offset the higher risk.
Some merchants just want to accept Mastercard, Visa, Discover and American Express as payment options and are surprised to hear that they’re considered a high risk business. (View our list of high risk merchants here.)
There is an abundance of business types that need a high risk merchant account in order to process card transactions, and in this article we’re going to dive into why that’s true for each business type.
And then the last definition, the one we all wish weren't true but unfortunately it's rampant throughout the processing world. Certain credit card payment processing companies use the “high risk” tag to gouge unsuspecting business owners out of more of their hard earned profits.
To make sure you're never subject to this unfortunate third definition of the term, we're going to lay out exactly how to find out if you're being lied to, and how to pick a high risk merchant account that works for you.
If you have a business that requires eCommerce payments, debit and credit cards online are just about the only way that you’re going to be able to accept payment from customers.
While Paypal and Square are great processing solutions for small businesses, they aren’t the right fit for a more established business.
Once your business grows, it will be time to move on from the Square and Paypal option and adopt a more traditional account with high risk payment gateways.
Moving from the world of the small business to that of a medium or large business means understanding all of the details and terms that surround merchant accounts.
Usually the larger the business and the more they process, the lower the processing rates and the more generous the terms they’re offered.
It would be lovely if all high risk credit card processors treated each business the same, but sadly that’s just not the reality in today’s marketplace. Extending a line of credit isn’t quite as simple as it used to be. Processing credit cards has grown in complexity in recent years.
Every business that applies for a merchant account is assessed for the level of risk that their business experiences. The level of risk has a dramatic effect on the processing rate that is offered to the business, and is usually centered around the amount of chargebacks that business receives offset by the volume merchants process each month. Chargeback prevention can go a long way towards helping you keep your chargeback rate much lower.
If your business is determined to be a high risk business, it makes it more difficult to secure a traditional merchant account.
Many processors will simply refuse to work with you while others will increase their processing rates significantly if they offer you an account.
We’re going to detail all of the reasons why your business might be labeled high risk and what you can do to secure a merchant account that fits your business.
PCI compliance (Payment Card Industry Compliance) must also remain front of mind when looking for high risk merchant accounts.
Click Here to Find out if your business qualifies for a Shift Processing High Risk Merchant Account.
4.2 Reasons why you might be high risk
4.3 Types of High Risk Merchants
High risk credit card processing accounts can be found in many types of businesses. There are some business types that are almost always considered high risk. Knowing if your business type is in this list can help you negotiate your new merchant account by knowing how the processor is going to see your business through their eyes.
High Risk Merchant List (Click to Reveal)
1-900 Phone companies - If you’re the type of company that charges people to have a chat on the phone, you’ll be considered high risk.
Adult Bookstores - Clearly a part of the adult entertainment industry, and an easy mark for the high risk tag.
Adult Entertainment - Any business labeled with the "adult" descriptor will automatically be assigned a high risk status.
Adult Toys - As “adult” is in the name, it’s an easy target for association with the adult entertainment market.
Airline Industry - Due to cancellations on high ticket purchases, this will put your airline company in the high risk category
Amazon Stores - By having a high rate of return, Amazon stores are seen as high risk.
Ammo Sales - Association with the weapons industry guarantees high risk status.
Annual Contracts - Any time an annual contract is involved it can be considered highrisk because most consumers forget they signed up and chance of chargeback can be high.
Antiques - With a high average ticket per item, antiques are considered a risky merchant type.
Astrology - The study of the celestial bodies and the influence on human affairs can be a chargeback target if customers feel like they aren't getting the answers they want.
Auctions - Because of the nature of bidding on a product and not having a set price the risk level goes up.
Autographed Collectables - There is almost always a question as to whether an autograph is authentic, and therefore chargebacks are much higher in this industry.
Automotive Brokers - Brokers of automobiles have a very high average ticket are are therefore of higher risk.
Bankruptcy Attorneys - Since the people who are working with bankruptcy attorneys are usually in financial trouble, the odds that a payment would be charged back is higher.
Betting Services - In many states betting is illegal but for the legal states betting with a credit card has huge chargeback implications.
Brokering - When a third party is involved with selling a product the risk level goes up ten fold.
Business Loans (Merchant Cash Advances) - Loaning money is always risky, but with business loans and startup lending, high risk is present by the nature of the business.
Casino - Just like a betting service, if a customer gambles with their credit card the chargeback rate sky rockets.
CBD Products - CBD itself poses high chargebacks because of the legitimacy of the product and the health benefits promised.
CBD E commerce - CBD E Commerce has twice the charge back of retail CBD because many consumers don't feel like the product they receive gives them the benefits promised.
Check Cashing (Check Processing) - The level of fraud in check cashing and cash advances is what gives this industry a higher risk consideration.
Cigarettes - With higher levels of risk for theft and criminal activity, cigarette sales are deemed high risk.
Collection Agencies (Collection Agency) - Many banks see collections as an unsustainable business model that is many times unreliable.
Collectible Coins - A higher level of chargeback in this industry gives it a high risk tag.
Collectible Currency - Due to the level of inauthentic collectibles, the risk of chargebacks are much higher with collectibles.
Copyrighted eBooks - When someone sells something copyrighted without permission many legal issues can arise.
Coupon Programs - With many coupon programs the coupons expire and once they expire the consumer wants the money back they spend.
Credit Counseling - Due to their clients usually being in financial problems, this industry is fraught with non-payment and fraud.
Credit Protection - Most people that need credit protection are bad with money so chargebacks abound.
Credit Repair - If a consumer needs credit repair then chances are they are a high risk for chargebacks.
Currency Sales - Many businesses that exchange currency do it at incorrect rates hence more chargebacks.
Dating Services - Dating is a volatile industry, and is also lumped in with the adult entertainment industry, making it a high risk account.
Debt Collection Services - As the collection of debt isn’t always possible, this industry retains the tag of risky.
Debt Consolidation Services (Debt Consolidators) - Consolidating debt is a challenging business and as debt is usually the problem, it’s seen as unsecure from a payment perspective.
Debt Repair Services - Since the clients of debt repair services are usually having financial challenges, it makes this industry seem a higher risk.
Discount Health Programs - Many people don't feel they are really getting a discount so they try to get their money back and if they don't the chargebacks sky rocket.
Discount Medical Care Programs - Just like the discount health programs if they don't save the consumer wants their money back.
Drug Paraphernalia - Anything that is associated with the drug trade is considered high risk. Offshore merchant accounts are commonly used for this type of business.
E Commerce - As the source of the payment is unverifiable at the point of sale, any transaction without the card present has a higher risk of credit card fraud.
Ebay Stores - Many people sell items that aren't as described so chargebacks can be an issue.
Electronic cigarettes- much like traditional cigarettes, e-cigarette sales are also deemed high risk.
Electronics - This industry has a much higher ticket compared with many other businesses. A chargeback for a $3,000 tv or two and your account can be in jeopardy rather quickly.
Escort Services - This is deemed a part of the adult entertainment industry and therefore needs a high risk merchant account and payment solution.
Event Ticket Brokers - If a customer buys a ticket and doesn't use it they feel like they can charge the transaction back.
Extended Warranty Companies - Warranties are rarely used so people try to charge back the money that has been spent paying for them.
Federal Firearms License Dealers - Any organization associated with guns or firearms is automatically considered in this category.
Fantasy Sports Websites - Just like gambling, if a person starts to lose too often they try and charge back the transaction.
Finance Brokers - The entire financing industry is risky. By simply extending credit to other individuals, this business is betting that a majority of them will actually pay what they say they will.
Financial Advising/Consulting - The high risk tag on financial advisors isn’t about the advisors or their firm. It’s about the clientele and their current circumstances.
Financial Loan Modification Services - Due to a clientele in financial struggles, the high risk term is applied to any payments in this industry.
Financial Planning - Anything that includes risk for the consumer can have consumer implications with chargebacks.
Financial Strategy - Another risk and reward category, if money is lost, consumers try charging back making this a high risk industry.
Fortune Tellers - When a person doesn't hear what they want to hear, or what is told doesn't happen, the fortune teller can receive huge chargebacks.
Furniture Sellers - High risk only when its custom furniture.
Gambling - If money is lost the chargebacks rise.
Gaming - Chargeback levels skyrocket when consumers don't win.
Get Rich Quick Programs - It’s rather common in this industry for an individual to purchase the training and then chargeback their purchase saying it didn’t deliver on what was promised.
Google Stores - With a high rate of return on their items, Google stores are considered high risk.
Gun Sales (Firearm Sales) - The gun and projectile industry is automatically associated with high risk credit card processing.
High Average Ticket Sales - With any high average ticket, just a couple of chargebacks can mean a massive shift in how risky the account is deemed by the processor.
Home/Vacation Rentals - Many issues with chargebacks can take place if the consumer decides not to travel.
Horoscopes - Many people believe this is hocum so will chargeback transactions.
How To Programs - A common practice in this industry is to purchase the program and charge it back with the description that it didn’t deliver what it promised.
Hypnotists - Many merchants will charge back these transactions if results they hoped for were not met.
Import/Export Business - Another example of taking goods over country borders which automatically brings in additional risk to any processing account.
Indirect Financial Consulting - When using a third party to consult, the high risk status gives the processor fraud protection.
International Cargo - Any time you introduce a multi-country element to credit card processing, the ability for fraud to be introduced skyrockets.
International Merchants operating in the US - Since the merchant isn’t operating from the United States, there are many unknowns about what is happening on the other side of their business, thus increasing the risk.
International Shipping - Transporting goods between countries is risky and introduces all sorts of elements to the financial stability of any transaction.
Investment Books - consumers get upset if the investor isn't right which can lead to chargebacks.
Investment Firms - As investments are never a “sure thing” this is considered a risky industry for having a merchant account.
Investment Strategy - Anything with future promises can lead to chargeback.
Knife Sales - weapons of any kind are automatically given high risk status.
Kratom E Commerce - Accepting payments online is high risk, and Kratom is a substance in the health and wellness industry, which is also considered high risk.
Life Coaching - With no tangible goods involved in the transaction, life coaching is considered high risk.
Lingerie Businesses - Associated with the adult entertainment industry, chargebacks abound.
Lotteries - In most states you can buy lottery tickets with a credit card but if you're allowed to and the ticket is not a winner, consumers try to chargeback the transactions.
Magazine Sales - Many magazine sales are recurring subscriptions, which can have issues with chargebacks.
Magazine Subscriptions - Same as magazine sales chargebacks can be huge when a recurring subscription happens. (often referred to as recurring billing.)
Mail Order Companies - When something is ordered through the mail chargeback risk can go up.
Marijuana Dispensaries - As marijuana isn’t a legal substance in every state, this is considered high risk due to the legality of the product. Cannabis credit card processing is available through Shift Processing.
Matchmaking Services - Another branch of the dating tree, and often associated with the adult entertainment industry.
Medical Devices - If a medical device doesn't do what's promised the purchaser may chargeback the transaction.
Membership Organizations - This is another instance of where the transactions don’t have any tangible product and are easily charged back to the merchant account.
Merchants on the MATCH list - If you are a merchant who has been reported to the MATCH list (Member Alert to Control High Risk Merchants) or the TMF (Terminated Merchant File) you are given high risk status.
Merchants with Poor Credit - Merchant accounts are given based on the credit score of the business owner. It’s assumed that the business owner is going to be making the financial decisions for the business, and a poor credit score reflects on the viability of any business transactions.
Modeling Agencies - At many agencies models are promised the world and it doesn't happen. The consumer then wants their money back.
Movie Downloads - Transference of a digital product is considered of higher risk. Also, rarely is a physical card present at time of purchase.
Multilevel Marketing Sales - Often associated with pyramid schemes, MLM sales are considered a risky business.
Music Downloads - Purchasing any digital product is considered to be of higher risk than a physical transaction. Most of the time the card is not present in a digital transaction using a shopping cart.
Not a US Citizen doing business in the US - It's possible to get a merchant account without a US social security number, but not having a SSN will increase the risk the processor will have in issuing a merchant account for your business.
Online Adult Membership Sites - If you’re running a website that is adult themed and requires payment for access, this is a highly volatile account and definitely high risk.
Offshore Corporations (Offshore Merchants) - The international element is what gives the high risk tag when looking for domestic merchant accounts.
Online Gambling (Online Gaming) - Without a card being present and gambling as the activity, there are two reasons why this would be on this list. Online payment alone is risky even without the gambling element.
Overseas Exporting Services - The introduction of the international element is what gains access to this list.
Pawn Shops - There’s a general stigma that goes along with pawn shops, and it’s reflected in their assignment to the high risk processors list.
Penny Auction Sites - Even though the customers are usually bidding at only a penny more per bid, users will commonly charge back the transaction when they don't win.
Pepper Spray - Considered a type of weapon, pepper spray vendors are considered risky.
Points Programs - Points programs that cost money can cause chargeback issues if points are not used.
Pornographic Merchants - If you’re a part of the adult entertainment industry in any way, you’re considered high risk.
Precious Metals - Counterfeit metals can be a problem in this industry, making it more risky to accept payments for.
Prepaid Calling Cards - Anything prepaid that a consumer may not use increases chargeback issues.
Prepaid Debit Cards - When they expire or are lost consumers want their money back.
Psychic Services - “Honey, did you visit a psychic? No babe, I don’t remember visiting a psychic.” I’ll just reverse that charge then.
Real Estate - A common target for scams and identity theft is how real estate makes this list.
Replica Products (Watches, Handbags, Wallets, Sunglasses, Etc…) - As the product being sold isn’t authentic to the original manufacturer, the percentage of requests for refund is much higher than a traditional merchant.
Rewards Programs - If rewards are not spent, the consumer wants the money back.
Self-Defense - Since the payment provided is for instruction and not a physical product, the self-defense industry makes this list.
Self-Hypnosis Services - Yet another instance where the goods being transferred are of a service and not a physical product.
SEO Services - With a high rate of request for refund, SEO agencies make this list.
Social Networking Sites - Just like a dating site, if a consumer does not get what they want from it, they always like to chargeback.
Software Downloads - The software industry makes their way on to this list because of the digital nature of the goods being sold.
Sports Forecasting - An example of paying for information and not for a product, and usually not in person where the card would be present for the transaction.
Startups - Every startup is considered risky, and the percentage of startups that make it is quite small compared to the number that fail.
Student Loans - With the cost of a college education continually on the rise, so is the percentage of loans that default and never receive payment.
Strip Clubs - Associated with the adult entertainment industry gains the strip club access to this list.
Stun Gun Sales - considered a type of weapon, which makes it a high risk merchant.
Supplement Sales - The request for refund in this industry is quite high due to the nature of the product.
Sweepstakes - “Hey, I entered a sweepstake and I didn’t win. I’d like my money back please.”
Talent Agencies - “I paid thousands of dollars for headshots and glamorous outfits and I haven’t gotten any paid gigs. Pay me back my money please.”
Telemarketing Services - Telemarketing services many times do not have the results the purchaser would like to see, so the services are charged back.
Telephone Order Sales - Anything ordered over the phone has a increased risk of chargeback.
Timeshare Companies - When timeshares aren't used, people want their money back.
Travel Agencies - If trips are not taken, consumers would like their funds returned.
Travel Clubs - Many travel club discounts aren't what they were promised, increasing risk for chargebacks.
Vacation Rental Brokers - Third party brokers on prepaid vacation can have issues when customers cancel their trips.
Vape Shops - The level of criminal activity and theft is higher with vape shop merchants and therefore carries a high risk label.
Vitamin Sales - If the vitamins don't provide the results the merchant would like to see they chargeback the transactions.
Web Designer - Because this service is prone to chargebacks, it has been classified as high risk.
Weight Loss - Considered risky because the results aren't really up to the company, but rather the individual has to stick to the plan to get results, often resulting in chargebacks.
Yahoo Stores - Since the goods sold through Yahoo can easily be returned, they are considered a risky merchant.
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4.4 processing fees for high risk merchant accounts
Merchant accounts for high risk businesses usually cost quite a bit more than a traditional merchant account. In many cases, it can be 3-10 times more depending on how risky your venture is evaluated to be.
For almost any merchant account, high risk credit card processing providers do all that they can to lock their merchants into long term contracts. In the high risk processing arena, contract terms are usually much harder to negotiate.
If you’re finding that the only options for your business are 3 year term contracts, you’ll be glad to know that the industry is trending towards month to month contracts.
If you’re being pitched a 3 year or longer contract for your high risk merchant account, it’s time to look for another provider that offers month to month contracts.
It’s unfortunate that most highrisk merchants don’t have much in the way of bargaining strength, but don’t sign on to a contract that doesn’t feel right or locks you in for the long term.
These long term accounts usually have a hefty penalty for exiting the contract, and it would be unfortunate to find a better provider just a few months down the road and be locked in for many years to come.
Also be on the lookout for a liquidated damages clause in the contract that you’re presented. These have the ability to raise your early exit fees as you proceed with your contract.
Most high risk merchant accounts will have fees that are double and triple that of a traditional business. There are many options for a traditional merchant account without any kind of a monthly fees, but it’s harder to come by in a high risk account.
Another fee to watch out for is what’s called a rolling reserve. This is a reserve that is placed on the money within your account to account for the chargebacks that are expected each month.
Instead of giving you all of the proceeds from your sales, a percentage is held back to pay for these chargebacks each month. Not every high risk merchant account has a rolling reserve, but many do to protect the processor and the merchant.
Since your processor is taking on additional risk by offering you a merchant account, the fees charged often reflect this added risk to accept Visa, Mastercard, Discover and American Express.
You should be able to find a processor that offers you less than 3x the rates of a traditional merchant account. If you aren't finding that rate for your type of business, it might be time to look around and find a better merchant processor that specializes in high risk.
Before you sign any contract, we always suggest that you read the contract in full before you sign. Every merchant account contract will show you what that particular processor is all about in their contract terms.
If you’re reading your contract and find it impossible to understand, there’s probably a reason for that and you should consider another payment processor. You shouldn’t have to risk payment processing rates to find a reputable merchant services provider.
Click Here to Find out if your business qualifies for a Shift Processing High Risk Merchant Account.
4.5 How to choose your high risk merchant account
High approval rating for submitted accounts
While you may feel like you have limited processing options, it is possible to find a processor that has a great track record in getting accounts approved for a highrisk business.
A processing company can promise you the best terms in the world, but if they can’t get the account approved, you’re just wasting your time.
There are a few high risk merchant account providers who have a 99% and higher success percentage in authorizing a new merchant account.
These are the payment processing companies you’re looking for.
No hidden fees
The payment processing industry is full of companies that think the best way to do business is to hide fees in their contracts.
While this used to be an industry leading practice, thankfully the industry is changing.
Please always read through your contract before signing anything as this is the primary place that hidden fees can be found.
You want a company that is upfront and honest with you about the fees that they will be taking out of each transaction.
If they can’t be honest and upfront with you about that, do you really want them handling all of the money for your business?
Your top picks for potentially becoming your processing partner shouldn’t have any hidden fees.
Month to month contracts
Multi-year contracts can be great for other accounts, but they’re not fantastic for high risk merchants processing credit cards.
They can be great for the processor, but they’re rarely great for the merchant.
Find a processing company that offers month to month contracts on their high risk accounts.
minimal rolling reserve
Let’s call this what it is. A rolling reserve is a layer of protection for the processor that any chargebacks will be repaid without them having to dip into their proceeds to cover any losses.
If your account doesn’t have any regular chargeback history, there’s not really a good reason to have a minimal rolling reserve.
If you do have a processing history of chargebacks, then it’s probably a good thing to set aside a percentage of your proceeds to help offset that.
no early exit penalty
Remember that what you’re looking for in a contract is a month to month contract with no exit penalties.
You should be processing with a company that wants to keep you processing with them because you want to be there.
Signing a 3 or 5 year contract for a merchant account is like handcuffing your business to a processor voluntarily.
No matter what you do, you’re always going to be tied together unless you break the contract or finish your team.
Wouldn’t you rather voluntarily hold hands with your processor than be handcuffed to them?
zero fee compatibility
In Europe there’s a program that allows you as the business owner to pass the credit card processing fees back to the consumer.
It’s called Zero Fee Processing, and it’s growing in popularity here in the US.
It’s more difficult to get a zero fee account as a high risk merchant, but it’s not impossible.
As the cash back percentages for business credit cards continue to rise and the cost of accepting credit cards climbs higher and higher, it might be time to give your customers a choice on how to pay.
If you’re interested in a zero fee merchant account, make sure the processor you choose is compatible with this new system.
Cash Discount program ready
Similar to zero fee processing, a cash discount program allows you as the merchant to raise your prices to include the card processing fee in every price in the store while giving a 4% discount to anyone who pays with cash.
This is another way to completely eliminate your processing fees as a merchant.
If you’re considering a merchant cash discount program, make sure the merchant account you’re applying for is compatible.
Reasonable fee structure
Before you sign even a month to month agreement with a merchant processor, you should clearly understand the fee structure that you’re signing on to.
Make sure you’ve highlighted the contract and discussed any portion of the contract that is confusing or unclear to you.
If you find any hidden fees, be sure to negotiate them out of the contract before you sign.
The application process can be complex, but the right processing partner should make it easy for you to understand exactly what you’re signing up for.
Be certain to discuss debit card and credit card processing rates as they are different, and processing debit cards can be a significant portion of what your customers use for payment.
You should be able to find a high risk merchant account that charges between 2-4x a traditional merchant account depending on how risky your industry might be.
There are domestic options for almost every merchant instead of taking your processing overseas for higher rates.
Click Here to Find out if your business qualifies for a Shift Processing High Risk Merchant Account.
How to Avoid Credit Card Processing Fees
Online Credit Card Processing: No Storefront, No Problem, right?
Accepting Mobile Credit Card Processing Payments on the Go
High Risk Merchant Account: Can I accept domestic payments with no reserves?
Choosing the Credit Card Processing for Small Business That’s Right for You
Credit Card Processing Companies: We Compare the Industry Leaders
The Best Credit Card Processing: Find a Partner that will Lower Your Rates