What You Need to Know About High Risk Merchant Accounts

Finance by  Mashum Mollah 26 October 2020 Last Updated Date: 22 December 2020

High Risk Merchant Accounts


  • Are you an entrepreneur or CEO who is running a high-risk online business and want better payment processing?
  • Do you know how high risk merchant accounts can help you avoid many troubles, which such businesses face?
  • Have you tried to reach out to banks only to be bombarded by exorbitant charges and commissions for your high risk merchant accounts?

It is true that the internet and the rise of digital platforms have created millions of new businesses. It has allowed many of us to realize our dreams of being an online entrepreneur. However, running an online business, especially a high-risk one comes with its own sets of challenges and issues.

Primarily, among them is the issue with safe monetization. Many established financial providers have devised a system of categorizations wherein, they put businesses under two heads-

  1. High-Risk Businesses
  2. Low-Risk Businesses

In this article, we are going to look at what entrepreneurs and CEOs need to know about high risk merchant accounts. In addition, we will look at what are some credible alternatives business owners can take to improve their payment processing structures.

High Risk Merchant Accounts- Meaning and Definition

For many business owners hearing the term, ‘high-risk’ can mean something, which turns out to be dangerous. However, that is not the case. Many first-time business owners who hear the term from their bank are likely to feel offended when they face such a categorization.

In very simple terms, a high-risk business is a classification, used by the merchant bank for online businesses, where the chances of charge-backs are higher.

In other words, these involve businesses, where the customers are likely to cancel an order, claim refunds, and maintain a separate chargeback account.

Merchants in such an instance are expected to serve your business by creating an additional chargeback account and the administrative costs of maintaining the same terms the business as a high-risk one.

Business owners who are into these industries should look for credible high risk merchant services to help them with faster and more efficient payment processing.

How do Banks Classify some Businesses as High-Risk?

It is very important for business owners to understand how financial institutions assess their company. Once you are able to understand and do the analysis by yourself, you will be in a much better position to select the best merchant for your payment processing needs.

In this section, we will look at five key variables used by merchants to assess a business as high-risk or not.

1. Your Business Address-

If you are a business, which operates from your home address, merchants automatically you as high-risk. This is based on the assumption that there is a possibility wherein you can wind up the operations quickly. Commercial office addresses are considered to be more professional and trustworthy by merchants. Similarly, if your office is located outside the country, your business can be termed as high-risk.

2. The time you have been in Business-

If you are a relatively new entrant and have just set up your business, merchants might put you in the high-risk category. According to financial experts, once a business has completed three to five years and is maintaining a decent account, it can be removed from the high-risk category. Once you have been in business for a longer period of time, different merchants are likely to come forward and offer you better financial deals and processing.

3. Relationships with other Financial Partners-

A new merchant is likely to look at your previous and past relationships with older financial partners. This is because they want to find out whether you had been maintaining proper accounts, payments, and processes as part of your business engagement. Merchant partners regularly share information and can find out about your business and its standing even without your knowledge most of the time.

4. Chargeback Percentages and Rates-

Every business should try to ensure that the number of chargebacks should be as limited as possible. Businesses should invest in customer relationships, mediate disputes, offer refunds, and learn how to win a chargeback. In other words, every possible kind of strategy should be adopted to avoid the emergence of chargebacks for a business. For merchants, chargebacks are the single biggest reason for a business getting categorized as high-risk.

5. Nature of the Industry-

Some businesses are automatically classified as high-risk. For example, experts point out that adult entertainment sites, betting and gambling sites, gaming websites, etc. are some examples of industries, which are certain to be labeled as high-risk. These businesses are identified as high risk merchant account just because of the nature of their area of operations. In the last few years, industries like logistics, shipping, and dating sites have also come under the purview.

Low-Risk Businesses and Merchants: What are they?

For a very long time in the article, we have been discussing high-risk accounts. However, in order to make business owners better understand what they really are, it would be useful to discuss low-risk accounts.

Financial institutions and payment processors categorize certain businesses as a low risk depending upon a number of variables. Some of them are-

  1. If the monthly payments processed by your business is less than $20K. Meaning the volume is low and safe for a merchant.
  2. There are very few to zero chargebacks on your accounts. Remember, chargebacks are the single biggest high-risk factor.
  3. The business operates from developed countries in the European Union, Australia, the USA, Japan, and Canada.
  4. Credit card transactions are a minimum for the business. Banks specify is at being less than $500 USD per month.
  5. The nature of the industry is safe and secure. Banks prefer FMCG companies, which deal with baby goods, shirts, clothes, and shoes.

While every merchant has their own assessment of what constitutes a low-risk business, there is a general consensus on the above-mentioned points.

The Final Word

Business owners need to realize that if they fall within the high-risk zones, they would be required to pay higher fees. However, they should always do their research and select financial partners, who are willing to take them on and partner with them for lower fees. It should be pointed out that business owners can also negotiate with merchants to offer them charges on a transaction basis, and not on a monthly cost basis.

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Mashum Mollah

Mashum Mollah is an entrepreneur, founder and CEO at Viacon, a digital marketing agency that drive visibility, engagement, and proven results. He blogs at thedailynotes.com/.

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