High-risk merchant accounts and your payment processing fees

If you’re a business that accepts card payments, especially online, you may have encountered the term ‘high-risk merchant account.’ This can be a nerve-wracking term to hear, especially if it applies to you and your finances. So, what is a high-risk merchant account, and how does being labelled as one impact your payment processing fees? In this article, we take a look.  

What is a high-risk merchant account?  

A high-risk merchant account is what your processor may require you to operate under, depending on certain characteristics about your business. These characteristics are what the processor would typically associate as a higher risk for chargebacks and fraud.  

What makes a business high risk? 

Ultimately, it’s up to the processor’s policies. Some processors base it off particular industries, marking firearm, tobacco, cannabis, and other kinds of sales as high risk. International sellers are often also marked as high risk.  Since there is no governing body deciding what is high risk, every processor’s rules are going to be a bit different.  

Some other common risk factors include: 

  • Subscription-style payments plans. 
  • Being on the Member Alert to Control High-Risk Merchants, or MATCH list — a list managed by Mastercard that monitors merchant behavior, like chargeback history. 
  • High average transaction sizes. 
  • High sales volumes. 
  • A large number of card-not-present transactions, such as online or over-the-phone purchases. 
  • Little to no business experience. 
  • Long fulfillment time frames. 
  • Poor credit. 
  • Past fraud or illegal activity. 

What industries are labelled high risk? 

Again, it’s going to be up to the individual processing company, but there are some industries that have a greater likelihood of making those lists. These include, but are not limited to: 

  • Adult products or services. 
  • Bail bonds. 
  • Automotive parts and accessories.  
  • Regulated industries, like tobacco, cannabis, liquor, firearms, etc.  
  • Debt collections and credit repair. 
  • Online dating services.  
  • Dropshipping.  
  • Weight loss and dieting. 
  • Pawn shops. 
  • Online gaming and casinos.  
  • Travel and vacation.  

The high-risk label might impact your bottom line.  

On top of annoying you with a lengthier application process, being labelled high risk by your processor also comes with potential financial repercussions. These can include: 

  • Higher card processing fees. 
  • Higher chargeback fees.  
  • Cash reserve requirements – where the processor might hold onto some of your revenue as a hedge. 
  • Processing volume caps. 

None of these are ideal for your business, especially if you’re a new company trying to get off the ground and become profitable.  

What can you do?  

Unfortunately, you need a card processor, and you can’t always control the variables that mark you as high-risk. If it looks like this might end up being you, there are steps you can take to reduce your risk level, such as implementing policies to reduce chargeback levels and working towards improving your credit rating.  

It’s also important to note that many processors will try to lock high-risk accounts into longer-term contracts. Why wouldn’t they if they’re charging higher rates, right? If you’re signing a new contract, or stuck in a contract you’re unhappy with, working with an independent professional to review your card processing environment could be extremely beneficial.  

In conclusion… 

Every payment processor has different rules for what makes a business a ‘high-risk’ account. Falling into that category, regardless of whether or not it’s in your control, can impact your payment processing fees, and therefore, your business’ profitability.