What Are High Risk Merchant Accounts & Which Are Best?

This article is a comprehensive guide to understanding high-risk merchant accounts and selecting the best providers for your business.

If you run a business that’s considered “high-risk,” finding the right merchant account can be a challenge. Traditional payment processors are often hesitant to work with high-risk businesses due to a range of concerns that extend beyond the risk of fraud and chargebacks.

Fortunately, a range of companies specialises in filling this gap, offering dedicated merchant accounts for high-risk businesses.

What is A High-Risk Merchant Account?

A high-risk merchant account is a specialised payment processing solution for businesses that are deemed to be at a higher risk of chargebacks, fraud, or other financial losses. High-risk merchant accounts work with businesses in industries that are considered risky, such as travel, gambling, or adult entertainment. They may also have a history of high chargebacks or financial instability.

Typically, these accounts have higher fees and stricter requirements than standard merchant accounts.

Do I Need a High-Risk Merchant Account?

Deciding whether you require a high-risk merchant account largely depends on the sector your business operates in and your transactional history. High-risk sectors typically include those with high chargeback ratios, such as adult entertainment, e-cigarettes, online gambling, pharmaceuticals, and travel services.

Moreover, if your merchant account has been frozen or terminated by a mainstream payment processor like Stripe, this could be a sign that your business is considered high-risk. Mainstream processors often have strict criteria for assessing the risk associated with an account. Factors contributing to such decisions include high chargeback rates, returns, or disputes, which surpass thresholds set by these processors. Additionally, operating in a sector that is prone to regulatory changes or legal challenges can lead to account suspension.

Why are Some Businesses Considered High-risk?

The classification of a business as high-risk is not arbitrary; it is based on a set of specific factors that payment processors and financial institutions assess risk based on historical data. One of the primary factors is the industry in which the business operates. Industries subject to high levels of regulation, or those that have a reputation for a high rate of chargebacks, are often labelled as high-risk.

Even some traditional businesses like travel agents often fall into the high-risk category when it comes to payment processing. This is primarily due to the extended period between receiving payment and delivering services, which can result in a higher potential for cancellations and chargebacks.

Here’s a detailed look at how businesses are assessed as high-risk:

Sector: Certain industries are naturally riskier. Online gambling, adult entertainment, and travel services often face higher chances of chargebacks or fraud.

Financial History: A business with a history of financial issues, like poor credit scores or a lot of chargebacks (where customers ask for their money back), is more likely to be seen as high-risk.

Product or Service Type: Selling items or services that often lead to customer disputes can make a business high-risk. This includes things like subscription services or expensive products.

Sales and Transaction Patterns: Companies that have unusually large sales, sell mostly to international customers, or have irregular sales patterns are often considered high-risk. This is because these patterns can be linked to higher fraud or chargeback rates.

Legal and Regulatory Issues: A business in an industry with strict laws (like tobacco or CBD products) is often labelled high-risk. This is because these industries have more legal challenges and regulations to follow.

Geographical Location: Businesses operating in countries known for high levels of fraud or economic instability are often seen as high-risk. This includes both where the business is based and where its customers are.

Duration of Operation: New businesses without a track record are often considered riskier.

Chargeback Rates: If a business has a history of high chargebacks or is likely to have them, this is a big factor in being labelled high-risk. Chargebacks are costly for payment processors, so they’re cautious with businesses that might have many.

What is considered a high-risk transaction?

A high-risk transaction is one with a higher chance of fraud or chargebacks, often found in industries known for high dispute rates or fraud potential, such as online gambling, travel, or adult entertainment. These transactions can also involve large amounts of money, international sales, certain payment methods more prone to fraud, customers with a history of chargebacks, or businesses with a high average transaction value.

Examples of High-Risk Business Sectors

Here are some examples of businesses that are commonly considered to be high-risk:

High-Risk vs. Low-Risk Merchant Accounts

Payment processors classify merchants as either high-risk or low-risk based on a number of factors, including the industry they operate in, their average transaction value, and their chargeback rate. High-risk merchants are those that are considered to be at a higher risk of fraud, chargebacks, or other financial losses.

Advantages and Disadvantages of Opting for a High-Risk Payment Processing Solution

How To Choose a High-Risk Account Service Provider

When selecting a high-risk merchant account service provider, you need to be sure that the provider is going to work for your business. Here’s a guide to making an informed decision:

1. Proven Track Record in High-Risk Industries:

Seek providers with a demonstrated track record of successfully serving businesses in your specific industry.

Opt for a provider with deep knowledge of your industry’s regulations, transaction patterns, and challenges. This expertise helps in:

• Navigating industry-specific regulations effectively.
• Understanding typical transaction patterns to optimize payment processing.
• Tailoring solutions to your business model, including billing and risk management.

2. Clear Fee Structure:

High-risk merchant accounts typically involve a complex fee structure, including both visible and hidden costs. Examine the entire fee schedule, focusing on:

• Monthly and transaction fees: The primary costs for maintaining the merchant account.
• Chargeback fees: Charged for each transaction disputed by the cardholder.
• Rolling reserve requirements: Funds held by the provider to cover potential chargebacks.
• International transaction fees: For transactions processed outside your domestic market.
• Discount rate: The percentage of each transaction deducted for processing fees.

3. Customer Service:

High-risk accounts often entail complex issues requiring prompt resolution. Choose providers known for responsive and knowledgeable customer support. Key aspects include:

• Availability for queries: Promptly addressing questions and concerns.
• Chargeback assistance: Expert guidance in handling disputes and minimizing costs.
• Compliance guidance: Assistance with regulatory compliance and financial guidelines.

7. Robust Security Protocols:

Ensure the provider has strong security measures for high-risk accounts:

• SSL encryption: Securing sensitive data transmission and storage.
• Secure payment gateways: Protecting transactions from unauthorized access.
• PCI DSS compliance: Adhering to global security standards for payment card transactions.

8. Customisation Options:

The flexibility of account features can be advantageous:

• Customizable billing: Align billing cycles with your business’s cash flow.
• Payment thresholds: Set limits to manage funds and reduce cash flow issues.
• Risk management: Tailor strategies to your industry’s specific needs to mitigate fraud.

9. Fee Transparency:

Ensure a clear understanding of all fees to avoid hidden costs:

• Monthly and transaction fees: Know the base rates and any additional charges.
• Chargeback fees: Be aware of costs associated with disputed transactions.

How Much Do High-risk Merchant Accounts Cost?

High-risk merchant accounts usually have higher fees to offset the greater risk involved. Here’s a breakdown of the common fees and rates:

• Discount Rate: Generally starting at around 1.95%, this is a percentage of each sale paid to the payment processor.
• Per-transaction Fee: A higher flat fee for each transaction, which can be around 4%.
• Reserve Fund: Payment processors may hold back about 15% of your transaction revenue in a reserve fund for chargebacks or fraud.
• Setup Fee: An initial fee charged by some processors for setting up a high-risk merchant account.
• Monthly or Yearly Fees: Maintenance fees for high-risk accounts, typically ranging from £50 to £100 per month.
• Special Category Fees: Additional fees for businesses in specific high-risk categories, like adult content or gambling.
• Exit Fee: A fee for early termination of the high-risk merchant account.
• International Transaction Fees: For transactions processed outside your domestic market, fees can go up to 10%.

What are the Credit Card Processing Rates for Higher Risk Businesses?

Credit card processing rates for higher-risk businesses vary widely but often typically range from 2.5% to 8%, and may also come with additional fees such as higher chargeback fees, monthly fees, or setup fees.

What to Do If You’re a High-risk Business and Need a Payment Processor

For high-risk businesses seeking a payment processor, taking proactive steps can significantly improve your chances of securing a merchant account with favourable terms. Here are some strategies:

1. Maintain Healthy Cash Levels: A strong cash position in your business bank account signals financial stability to processors, reducing perceived risk.
2. Reduce Chargebacks: Analyze and address the root causes of chargebacks, such as product misrepresentation or delayed deliveries. Implement additional measures such as using fraud filters, clarifying statement descriptions, and facilitating an efficient refund process.
3. Be Transparent: During the application process, disclose all relevant information about your business and finances. Transparency builds credibility and trust with potential processors.
4. Keep Documents Ready: Prepare and organize essential documents, such as recent bank statements and tax returns, tailored to each processor’s requirements.
5. Follow Processor Guidelines: Engage with potential processors to understand their risk assessment criteria and be willing to adjust your business practices to meet their standards.
6. Keep Accounts Up to Date: Demonstrating financial diligence with current accounts can prove your business’s financial health and reliability.
7. Improve Your Credit Rating: Improve your credit score by avoiding late payments and clearing any outstanding debts, as a higher credit rating can support your application.
8. Ensure Compliance with T&Cs: Your business’s terms and conditions should comply with all regulatory practices, reducing potential legal risks for processors.
9. Protect Yourself in Third-Party Fulfilment: If using third-party fulfilment, ensure your contracts safeguard your interests in case of disputes or issues.
10. Get Multiple Quotes and Research: Approach several processors and conduct thorough research, including reading customer reviews, to negotiate from a stronger position.
11. Consider Offshore Merchant Accounts: Expanding your search to include offshore accounts can open up more options, potentially with more favourable terms, due to different regulatory environments.

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

When applying for a high-risk merchant account, the process involves several crucial steps:

1. Gather Required Documents:
   • Incorporation Certificate: This confirms your business’s legal status.
   • Recent Bank Statement: Showing company name and account details (account number, IBAN, etc.).
   • Valid ID of Company’s Owners/Directors: A scanned copy for identity verification.
   • Organisational Structure Chart: Illustrating the hierarchy and roles within your company.
   • Shareholders’ Certificate: If applicable, to show ownership structure.
   • Business License: If your industry requires one, include the license number and issuing organisation.
   • Processing History: Six months’ worth of transaction data, including total volume, number of transactions, and chargeback rates.
2. Ensure Website Compliance:
   • Your website should clearly display the company’s legal name.
   • Publish a comprehensive Refund and Return policy.
   • Display contact information for customer service and support.
   • Detail the methods and timings of product delivery.
   • Secure your website with an SSL certificate and ensure it uses HTTPS.
3. Submit the Application:
   • Reach out to your chosen provider to initiate the application process.
   • Complete the application form accurately, providing all the requested information.
   • Attach all the gathered documents.
4. Undergo the Review Process:
   • Once submitted, your application will go through a review process by the acquiring bank or payment processor.
   • Be prepared to provide additional information or clarification if requested.
5. Review and Accept the Terms:
   • Upon approval, you’ll receive terms and conditions for the merchant account.
   • Carefully review these terms, ensuring they align with your business needs.

Remember, each merchant account provider may have specific requirements or steps in their application process. It’s important to follow their guidelines closely and provide complete and accurate information to facilitate a smooth approval process.

How Do High-risk Merchant Accounts Differ from Regular Accounts 

Stricter Acceptance Criteria

For high-risk accounts, payment processors scrutinize factors that typically wouldn’t be as critical for regular accounts. These include a history of high chargebacks, average transaction size (larger transactions are riskier), industry type (some are prone to fraud or legal disputes), and the business’s financial stability. They also assess the company’s operational history, looking for any previous merchant account terminations or legal issues. In contrast, regular accounts are evaluated more on general creditworthiness.

Higher Fees

High-risk accounts incur substantially higher fees to offset the risk they carry. This includes increased transaction fees, monthly or annual account fees, and notably higher fees for chargebacks.

Reserve Requirements

High-risk accounts often have stringent reserve requirements, such as a rolling reserve, where a percentage of each transaction is set aside to cover potential chargebacks or fraud. This could be as high as 10% of each transaction. Alternatively, a capped reserve might be used, where a fixed proportion of transactions is held until reaching a predetermined level. In some cases, an upfront reserve is required, where the merchant must provide a set amount upfront.

Tougher Contract Terms

High-risk accounts often come with more stringent contract terms, including longer commitment periods and tougher penalties for early termination.

Longer Underwriting Process

The application and approval process for high-risk accounts is typically more rigorous. This involves a thorough review of the business’s financial history and requires more comprehensive documentation.

Enhanced Security and Compliance Measures

High-risk accounts may demand enhanced security measures and strict compliance with various regulations, especially in industries prone to fraud or regulatory scrutiny.

Does Bad Credit Make You a High-Risk Merchant?

Yes, having bad credit usually categorises you as a high-risk merchant in the context of payment processing. The lowest credit score a merchant services provider will likely work with is typically around 550-600.

High-Risk Chargeback Protection

High-risk merchants face unique challenges in preventing chargebacks, but adopting strategic approaches can significantly mitigate these risks. Ensuring the business name on transactions is clear and matches the storefront or online presence is critical to avoid customer confusion when they review their bank statements. This straightforward measure can drastically reduce chargebacks arising from unrecognized transactions.

Transparency should also be key in every aspect of a high-risk merchant’s operations. From product descriptions to billing policies, clear and honest communication prevents misunderstandings that could lead to disputes. Withholding information to facilitate sales can have the opposite effect, leading to customer dissatisfaction and, ultimately, chargebacks.

Moreover, the importance of stringent defences against fraud cannot be overstated. Implementing anti-fraud measures like 3-D Secure and being vigilant for signs of fraudulent activity are essential practices.

The Best High-Risk Merchant Account Providers

Total Processing: Best Overall High Risk Processor

Manchester-based Fintech, Total Processing stands out as the top specialist high-risk payment processor in the UK. They offer flexibility, comprehensive features, and a genuinely customer-centric approach. They offer a wide range of services covering virtually any sector, (as long as it’s legal) with a focus on security and fraud prevention. With no long-term contract commitments and the ability to negotiate for better rates, Total Processing offers an unbeatable range of merchant services for high-risk sectors. They cover 180 currencies.

With a 99.99% processing uptime, they connect businesses to a global network of acquiring banks and payment methods. Their platform is compatible with multiple programming languages and integrates easily with popular e-commerce interfaces like WordPress, Magento, and Shopify. They also boast a superb high customer satisfaction rate, as evidenced by their 4.9 TrustPilot rating.

Fees

Total Processing offers competitive rates based on the market segment it caters to, with no setup fee or long-term contracts. Choose from interchange-plus or a tiered pricing model. Because the nature of their clientele is specialist and requires bespoke solutions, they don’t list standard pricing tables with figures like ‘from 0.4%’ because these would be meaningless. In higher-risk sectors, the rates will vary widely based on the locations involved, business sector, credit record, transaction history and so on.

Why We Chose Total Processing

Total Processing stands out for its excellent customer service, which is both responsive and expertly delivered. And for their unrivalled experience is providing large-scale solutions for complex online niches.

The company’s account managers are highly proactive, making the setup process easier and resolving issues before they become major headaches. Their support is so effective that it feels invaluable when you’re getting started or running into problems.

Transparency and reliability are also big wins for Total Processing. If you’re aiming to build a strong and stable online business, this company offers the kind of sturdy backbone you’d want for handling payments. The service is not only good; it’s also quick, which is vital for any business that can’t afford delays.

While setting up with Total Processing can take a bit of time, it’s time well spent. The company keeps you in the loop throughout the process, making sure you’re never left wondering what’s happening. This level of communication shows that they really care about client satisfaction.

Worldpay: A Leading High-Risk Merchant Account Provider

Worldpay is another leading option for UK businesses seeking a high-risk merchant account, distinguished by its long-standing reputation and broad industry experience.

Beyond gambling, nutraceuticals, and telemarketing, it also caters to other sectors often considered high-risk, like adult entertainment, e-cigarettes, and cryptocurrency trading. This versatility demonstrates Worldpay’s ability to understand and manage the unique risks associated with different business models.

One of Worldpay’s strengths is its risk management: its customised risk management solutions ensure that businesses in high-risk industries receive support specific to their needs, helping them navigate complex regulatory landscapes effectively.

With its longstanding industry presence, Worldpay also has established strong relationships with banks and financial institutions, which can be beneficial for businesses in high-risk sectors seeking stable and reliable merchant services.

Pricing

Worldpay’s fees for high-risk sectors aren’t advertised. Like anyone dealing with this niche, there are too many variables to make it practical. Typically, the transaction fees are tiered based on your annual card turnover, with lower fees for higher turnovers. For example, debit card fees range from 0.30% to 0.60%, and credit card fees from 0.70% to 1.50%, would be typical for normal areas of business. These could go as high as 6% for a really high-risk niche online.

Why We Chose It

Worldpay is the biggest payments processor in the world and, with so much experience, able to handle a diversity of sectors, including those considered high risk such as money remittance, Marketplace operation, Cryptocurrency exchange, Gambling, Contracts for Difference and Foreign Exchange Trading (including binary options). Each of these has specific terms and conditions, which you can read here.

While they don’t offer anything like the flexibility or level of customer service you might get from Total Processing, they are a well run operation with a lot of resources at their disposal should that prove the right fit for your business.

Instabill

Instabill is a merchant services provider founded in 2003 with a focus on serving high-risk businesses that are often turned away by traditional payment processors. Specializing in industries such as online pharmacies, adult entertainment, and gambling sites, Instabill provides a range of services tailored to the unique needs of these high-risk sectors.

While their specialized service comes at a premium, the company’s expertise and extensive banking relationships make it a valuable option for unconventional high-risk businesses. Merchants should, however, be prepared for higher costs and be fully aware of the trade-offs involved.

Pricing

Instabill’s merchant account fees are tailored to each business, with the exact amount determined only after understanding your specific needs. They consider factors such as industry type, processing history, and expected sales volume. The fees you can expect include a merchant account fee, transaction fee, discount rate, merchant account registration fee, monthly statement fee, chargeback fee, and refund fee. Additionally, they offer a rolling reserve fund for high-risk, international, and third-party merchant accounts, which is a fixed percentage of your weekly sales volume held to cover contingencies.

Why We Chose It

Instabill really stands out for its strong customer service and its knack for getting high-risk accounts up and running. The company scores an impressive 4.8 out of 5 stars on Reviews.io, and it’s easy to see why.

The account managers at Instabill go above and beyond. They don’t just manage accounts; they find solutions to difficult payment issues. The level of personal care they give makes it feel more like a partnership than just another business service.

Setting up a merchant account with Instabill is generally smooth sailing. While it can take some time for them to review and approve your account, that’s pretty normal for high-risk businesses. What’s exceptional here is how hard they work to find the right solutions for each merchant. It’s clear they won’t rest until they’ve sorted out your payment needs.

ccNetPay 

CCnetpay is a merchant services provider with a focus on high-risk and international businesses. Their services include payment processing and merchant account provision, particularly for sectors often overlooked by traditional processors such as pharmacies, adult entertainment, and gambling industries.

ccNetPay’s fee structure varies depending on factors such as processing volume, merchant category, and geographical location. For European merchants, discount rates range from 1.50% to 3.50%, with transaction fees between €0.15 and €0.25. Additionally, ccNetPay offers various optional services, including 3D Secure authentication and rolling reserve options.

Epoch Payment Solutions

Epoch Payment Solutions is another of the smaller high risk merchant services providers. Originally established to serve online adult entertainment merchants, Epoch Payment Solutions has expanded its reach significantly since its inception. The company was co-founded by childhood friends Joel Hall and Rand Pate, who aimed to bridge the gap between banking and the online adult entertainment industry.

They support 29 different payment types, including Visa, MasterCard, JCB, PayPal, Diners, Discover cards, Giro Pay, iDeal, and more. With the capability to present customer payment pages in 60 different currencies, they offer flexibility for international transactions.

Epoch’s pricing structure is based on volume of sales and is inclusive of several essential services. These services encompass Secure Payment Forms, Level 1 PCI Compliance, a 24/7 Worldwide Call Centre, Flexible Billing Methods, Device-Friendly Forms, and easy integration. The rates vary according to average weekly sales volume, with the highest tiers requiring businesses to contact Epoch directly.

Gspay

GSPAY is a global provider of offshore merchant accounts and third-party merchant account solutions. With a strong focus on serving high-risk businesses, GSPAY offers a secure and stable online credit card processing service. Established to cater to businesses worldwide, GSPAY has positioned itself as a reliable expert in high-risk payment solutions.

GSPAY offers transparent rates based on different business profiles. Here are some examples of their rates:

• E-commerce: Starting from 4%
• Nutra/Herbals: Starting from 6.5%
• Adult: Starting from 6%
• Forex: Starting from 4%
• File sharing systems: Starting from 10%
• Dating: Starting from 6%
• Gambling: Starting from 4.5%
• Pharmacy: Starting from 8%

In addition to these rates, GSPAY outlines various other fees, including transaction fees, refund fees, holdback or reserve fund percentages, chargeback fees, and wire transfer fees. Payouts are made on a weekly basis with a 10-14 day delay, and the minimum payout threshold is $2000.

Do Stripe, Paypal, or Square Offer High-Risk Merchant Accounts?

Stripe, PayPal, and Square typically do not work with businesses in high-risk sectors and they all have clear terms and conditions outlining sectors they and don’t work with. While it is possible to get on board with these providers with minimal KYC, at a certain point they typically check the MATCH list as part of their underwriting and risk assessment processes. The MATCH list, which stands for Member Alert to Control High-risk Merchants, is a tool used by the payment processing industry to screen potential clients. It’s a database that contains information about businesses and their owners whose merchant accounts have been terminated for reasons like fraud, excessive chargebacks, or violations of terms and conditions.

Even if a business is not listed on the MATCH list, payment processors like Stripe, PayPal, and Square may still determine that the business falls outside their risk tolerance. As a result, these businesses are often better served by specialist high-risk payment processors. These specialist processors are equipped to handle the increased risks and have more experience managing accounts in high-risk industries.

High-risk merchant accounts FAQs