High-Risk Merchant Accounts

If your business is struggling to get a standard merchant account and is deemed high risk you have fewer providers to choose from and are likely to pay higher card processing fees.

What Is A High Risk Merchant Account?

A high-risk merchant account is a payment processing service for businesses that banks consider riskier than standard accounts due to a high volume of chargebacks, financial instability, history of frauds, bad credit rating or other reasons which we will discuss in this article.

High-risk businesses are usually required to pay higher fees and go through extra scrutiny in order to obtain merchant services because of the aforementioned risk factors.

A merchant bank may put a rolling reserve – the amount of money that will cover the possibility of chargeback – on a high-risk business’s account if their history shows numerous refunds and chargebacks.

Do I Need One?

When applying for a merchant account, your business will be assessed in terms of risk to the bank or financial institution working with and providing you with an account.

A range of sectors, including charities, travel and tourism, tattoo studios, adult entertainment, insurance companies and affiliate marketing may be considered ‘high risk businesses’.

If you operate in a ‘high risk’ sector (which we list towards the end of this article) or have been denied by a bank in the past, then a high-risk merchant account will enable you to conduct business.

How Are Businesses Assessed As High-risk?

When it comes to assessing the risk of working with a high-risk merchant, a financial provider will look at both the enterprise in question and the sector it works in and then allocate it to a specific merchant category code (MCC).

For the enterprise itself, high-risk factors include:

• How many years the company has been trading (the younger the company, the higher the risk)
• How financially stable the company is
• The creditworthiness of the directors and owners (possibly offset when personal guarantees are involved)
• The income channel — i.e. subscriptions versus pay-on-delivery — and length of time between payment and delivery of product/service.

The business’s sector or vertical is likely to be analysed via:

• Credit Risk: Industries that have a delay between payment and delivery tend to be deemed as higher risk. That’s because if the company goes out of business before they can fulfil the order, the acquirer assumes liability. Airline carriers, tour operators and dropshippers are good examples of such ‘high risk’ sectors.
• Regulatory Risk: Some sectors are heavily regulated and are susceptible to drastic changes. Such unpredictability reduces the stability of long-term business models, and in turn, increases the risk involved. Additionally, there are more laws to break (knowingly or otherwise), which comes with consequences too.
• Reputational Risk: Banks rely heavily on their own reputation, and any activities that could jeopardise this are deemed high-risk (ie. facilitating legal but frowned-upon transactions.)

If your business is considered ‘high risk’ in any of the above ways, it’s likely a traditional bank may deny your account application. But that’s where a high-risk merchant account can come in very useful.

Examples of High-Risk Business Sectors

• Alcohol
• Adult Entertainment
• Advertising Services
• Affiliate Marketing
• Airline, Travel, Tourism And Lodging
• CBD Oil
• Charities
• Credit Repair And Debt Management
• Cryptocurrency
• Dating And Escort Services
• Debt Management And Collection Agencies
• Direct Sales And Pyramid Selling
• Drugs And Drug Products (Including Prescriptions)
• E-wallets
• Events And Tickets
• File Sharing
• Foreign Exchange (Forex) Merchant Account/Services
• Gambling
• Health And Wellness Products
• Insurance
• Investment Schemes
• ISPAnd Hosting Services
• Jewellery, Watches & Accessories
• Lender Merchant Account & Services
• Money Transfer
• Nightclubs And Bars
• Nutraceuticals
• Online Auctions
• Online Gaming And Gambling
• Payday Loans
• PPI Merchant Accounts & Services
• Prepaid Phone Cards
• Pyramid Selling
• Software Downloads
• Tattoo Studios
• Technical Support & Web Development
• Timeshares And Holiday Clubs
• Tobacco And E-cigarettes
• Travel And Tourism
• Vehicle Sales And Car Parts
• VPNs

What Are The Differences Between A High-Risk & A Low Risk Merchant Account?

The criteria for categorising merchants as high-risk or low-risk varies from provider to provider. However, there are certain standards for classifying both types of businesses as such.

General indicators of a low-risk merchant are based on the account provider’s favourable evaluation of the business and often include:

• Operating with only one currency
• Selling of low-risk products such as household goods, books, clothing etc.
• Having a well-established business that’s been around for multiple years
• A revenue of less than £15,000 per month
• The average credit card transaction is less than £50
• A very low chargeback frequency (or none at all)
• The use of 3D Secure technology to prevent fraud

Likewise, the overall characteristics of a high-risk merchant may also vary, but generally include:

• Multiple currencies accepted
• A completely new or a relatively new business
• Bad reputation due to the nature of services or products (adult industry, debt collectors etc.)
• Poor credit rating and financial instability
• A high chargeback frequency and fraud rate
• The average monthly sales volume is over £15,000
• An average credit card transaction is over £50

What Are The Benefits Of A High-Risk Account?

Flexible options of accepting payments

High-risk merchants are not as restricted as low-risk merchants are with the types of revenue they can collect by credit or debit card. For example, they can:

• Sell a wider range of products and services
• Collect recurring payments
• Process high sales volumes for special sales and launch events

It should be noted that there are low risk merchant accounts that can allow all the options above but they can increase the chances that the merchant will require a high risk account.

Ability to accept international transactions

Similar to accepting a wider array of payments, high-risk merchants are not as limited as low-risk merchants when it comes to accepting international currencies and transactions from abroad. This provides a good foundation for eventual business expansion into global markets.

What Are the Cons Of A High-Risk Merchant Account?

Higher transaction fees

High-risk merchant accounts generally come with higher transaction fees. You might be looking at between 4%-10%, versus the 1-2% % fee for other low risk accounts.

Higher set up fees

Risk comes at a price, like in any area of finance. Setting up your high-risk merchant account will cause greater setting up fees.

Longer settlement period

A longer settlement period is inflicted to help reduce the chances of a chargeback. This might be up to around a week compared to the usual 3 days.

Rolling reserve

A rolling reserve is used to reduce the bank’s potential loss from chargebacks. This means a portion of your card transactions are collected by the acquiring bank which is used as a payment buffer.

How Should I Choose A High-Risk Merchant Account?

Before deciding between different high-risk merchant account providers as your future business partner(s), you should evaluate the following factors in order to make a well-informed decision.

Do they work with other merchants in your industry?

Choosing a provider that’s familiar with your industry has some advantages. For one, they will be more understanding of what typical transactions are like, and they may even be better equipped to detect fraudulent activity.

Do they offer customer services by phone?

If you operate in a high risk sector, it is likely you are going to encounter more issues around payments. Having a customer services telephone number to call or live chat will be so much better than relying on someone to respond to email or support tickets.

What is their total fee structure (monthly fee, transaction fee and discount rate used)?

Some providers will charge high monthly fees but low transactions, whilst others do the opposite. When choosing between high-risk merchant account providers, it’s important to get all the relevant fee information and then use your typical transaction volume to produce an estimated monthly cost to your business.

If you only take orders online, do they specialise in payment gateways?

There is so many types of fraud possible with online payments that is well worth selecting a merchant account provider that has experience taking online credit card payments for high risk merchant services. They are likely to use a more secure payment gateway and have process in place to reduce fraud and chargebacks.

Are their security measures strict and reliable?

Your future payment partner should follow rigorous data security measures and best practices. For example, they should have a set of anti-fraud tools and a chargeback prevention system in place in order to keep your business safe from malicious users. Also, data encryption, firewalls and other standard measures of securing sensitive data are a must.

What service customisation options do they offer and how flexible are they?

You need to make sure that your merchant account provider can tailor their rates, products, services and features according to your business requirements, current state and objectives. This is especially vital if you run a particularly complex business model.

Are their fees & contracts transparent and understandable?

All the fees and potential supplementary costs should be laid out clearly on their website or when they provide you a bespoke quote. The small print in the contract should not be skimmed over and particular attention should be paid to any potential hidden fees, the length of the contract and the notice period and fees relating to contract termination.

At Merchant Savvy, we offer free, impartial advice and can recommend the best high risk merchant provider for your specific business. We’ll review contract terms and negotiate the best rates for you. 

Do they update their website regularly?

While on the subject of the provider’s website, the whole package should be kept up to date: general information about their recent events and the current year in the footer of the website. This is a sign of a company that still operates smoothly and is keeping up with the times and business requirements.

How much do high-risk merchant accounts cost?

• Around 4% for transaction fees and up to 10% on overseas transaction fees.
• Around £50 to £100 per month in monthly fees.
• Around 15% of your transaction money in the rolling reserve.

How to Apply and Get Approved For a High-Risk Merchant Account

Applying for a high-risk merchant account online is a fast and simple process: reach out to us so we can help you find the merchant account provider that is fit for your business.

When the acquiring bank initially approves your business for the account, you will need to send them this documentation in order to officially apply for a high-risk merchant account:

• Incorporation certificate
• Copy of a recent Bank Statement showing company name and bank account information – Account number, IBAN etc
• Scanned copy of valid ID of company’s owners/director.
• Organisational structure chart
• Shareholders’ certificate
• For businesses that require a license: the license number and the organisation that handed you the license
• 6 months worth of processing history (total processing volume, number of transactions, chargebacks etc.)

Also, you should ensure that your business’s website meets the following requirements:

• Clearly display the company’s legal name
• Publish a Refund and Return policy
• Display contact details for customer services and / or support
• List out all the methods and timings of product delivery
• Is secured with an SSL certificate and uses HTTPS

Every merchant account application procedure differs depending on the chosen provider, but the above are the mandatory steps every business applying for an account should go through.

How Can I Increase My Chances of Getting Accepted For A High-Risk Account?

Aside from simply applying for a high-risk merchant account, there are certain steps you can take to optimize your application and better position yourself for a successful outcome.