If you run an online business that has a higher risk of chargebacks and you want to process credit card transactions, then you need a high-risk merchant account.
To open a high risk merchant account, you would need to find an acquiring bank that will underwrite your business. However, it is good to ask a reliable payment service provider for assistance with this.
A high-risk merchant account is an account for payment processing needed for businesses that are considered to be classified as high risk to the traditional banks. One of the most important reasons is because high-risk businesses are more prone to chargebacks.
When a business comes with a high probability of chargebacks, or their history shows many chargebacks and refunds, the bank may include a rolling reserve on the account. This is basically the amount of money that will cover the possibility of chargebacks or fraud.
Low-risk vs high-risk merchant accounts
It is always a good idea to know whether your business is a high risk or low risk merchant account. Merchant account providers have their way for identifying businesses in terms of their potential risk, but there are several things features for both groups of merchants.
What is a low-risk merchant?
You must be aware that every payment processor has its own set of guidelines, but there are some characteristics that are common for all the players on the market.
The most common indicators for low-risk merchants are the following:
- Less than $20,000 processed every month
- Average credit card transaction is less than $500
- The industry that a merchant operates in is considered low risk (these are, for instance, low risk-clothes and shoes, household goods, baby products)
- Little to no chargebacks
- The country a business operates in is considered low risk such as European Union countries, USA, Canada, etc.
- Fewer returns
What is a high-risk merchant?
The most common sign is that the business has many chargebacks or comes with a higher risk of chargebacks. Hence, the main factors that matter are industry reputation and processing history (Your chargeback ratio should be less than 0.9% of your total transactions).
The following are overall characteristics of a high risk merchants:
- More than $20,000 sales per month
- Average credit card transaction higher than $500
- A business sells products and services to countries known for high levels of fraud
- Bad credit history and high level of chargebacks
Who needs a high-risk merchant account?
An example of high-risk businesses is the travel industry, as there are various factors there that can cause cancellations. Other examples may be online gambling and trading. This usually ends up with a number of refunds and disappointed customers who apply for a chargebacks.
There are many other industries or business models that are prone to chargebacks, so here’s the list of the most common types of businesses that need high risk merchant accounts.
- Annual contracts
- Antiques
- Attorney referral services
- Auctions
- Automotive brokers
- Bankruptcy attorneys
- Banned / illegal goods & services
- Brokering
- “Business opportunities”
- Car parts
- Casinos, gambling or gaming
- Chain letters
- Check cashing services
- Cigarettes, e-cigarettes, CBD or Vape shops
How do I apply for a high-risk merchant account?
If you want to get a high-risk merchant account, you need to fill out an application online. Of course, to accept card payments you need to do some research and find a reliable high-risk payment processor.
