Do You Need a High-Risk Merchant Account?

Your business may be classified as high risk, but that doesn’t negate your need to process credit cards and payments like any other enterprise. When it’s imperative that you accept payments even though your preferred processor denied you, signing up for a high-risk merchant account might be the ideal solution. Here’s everything you need to know about how these accounts function and what they could do to improve your business prospects.

What Is a High-Risk Merchant?

In order to open a merchant account that lets you accept credit cards and other payments, you need to formally apply with a payment processor. If you fail to satisfy the processor’s definition of what makes a good account holder, however, your application could be rejected on the grounds that you’re a high-risk merchant.

Credit card processors are under no obligation to accept you as a customer, since they may be liable for any risk you pose. For instance, if you’re involved in an industry that comes with a lot of speculative risks, such as investing in junk bonds, a payment processor could decide that you’re simply not worth the hazard.

Companies with poor credit ratings and histories of unpaid debt may run into similar troubles. So can young firms that haven’t performed very many successful transactions, which poses a unique challenge for startups.

Does Your Specialization Work Against You?

You may also be denied a merchant account based on other arbitrary corporate policies or the reputation concerns of credit card companies. For instance, some payment processors have refused to provide services to medical marijuana businesses that were operating legally in their states.[1] Others discriminated against artists, performers, educators and others involved in legal adult industries.[2]

Businesses that commonly experience challenges when opening merchant accounts may include:

  • E-commerce companies that sell goods via eBay, Amazon or other platforms,
  • Debt collection, consolidation and repair firms,
  • Supplement, nutraceutical and alternative medicine sellers,
  • Consumer electronics businesses,
  • Gambling and gaming enterprises,
  • Financial consultants and advisors,
  • Insurance and warranty providers or sellers,
  • Investment strategy, advisement and publication companies,
  • Off-shore holdings and businesses run by foreign nationals,
  • Talent and marketing firms,
  • Used vehicle sellers, or
  • SEO and web service companies.

Underlying Factors

What do these diverse businesses have in common? Payment companies take a number of critical details into account, such as:

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The Likelihood of Chargebacks

Payment processors are extremely wary of businesses that produce chargebacks, which are consumer protection mechanisms. In essence, they occur when your customers file complaints with their banks in order to get transactions reversed after they’ve already gone through.

Chargebacks are often initiated to resolve situations like fraud or identity theft. As a result, your chosen niche might make payment processors regard you as an unsure proposition. For instance, online merchants that accept or store consumer payment data and contact information may be more susceptible to identity theft attacks.

Perceived Reputation

Agencies like the FDIC have ceased the practice of listing which industries qualify as high risk.[3][4] Although it’s ostensibly frowned upon by the government, major payment processors still discriminate against these kinds of businesses simply because of the public image they want to portray.

In some cases, like the adult industries example from earlier, processors can legally reject companies by including obscenity prohibitions in their terms of service. They may also deny firms that bear the brunt of negative public opinion, such as unlicensed resellers of event tickets or fantasy sports website operators.

Legality Issues

Some companies walk a fine line between valid and illegal business models. For instance, direct-sale marketing strategies might be outlawed in certain jurisdictions but not in others. Even if you’re operating completely within the bounds of the law wherever your company is incorporated or registered, a credit card processor may not want to be associated with potentially questionable practices.

High-Risk Merchant Accounts to the Rescue?

Being classified as high risk isn’t necessarily a death sentence for your company. The solution may be as simple as picking an alternative payment processor with less stringent rules. When you exhaust such options, however, it’s time to investigate high-risk merchant accounts.

How Do High-Risk Merchant Accounts Differ?

Firstly, you need to accept the fact that high-risk merchant accounts are typically associated with worse contract terms than their normal counterparts. Although you’ll still be able to take advantage of most of the same features that come with regular merchant accounts, such as access to payment gateways, physical terminals and purchasing cards, you should expect to pay significantly more for the privilege.


Your high-risk merchant account provider may demand that you pay into something called a rolling reserve, or holdback. This lowers your processor’s risk by letting them automatically withhold a specific percentage of your gross sales for a given time period.

Holdback proceeds typically remain in accounts that don’t accumulate interest, so your payment processor isn’t necessarily profiting off of them. Instead, they serve as a type of guarantee against fraud, chargebacks, the closure of your business and other potential losses. Holdback percentages vary by provider, and you may be able to negotiate how long the withholdings remain in limbo.

Discount Rates

All merchant accounts are associated with various dues and fees that are collectively known as the discount rate. A typical discount rate includes markups and charges such as:

  • Interchange fees that are paid from the paying card’s bank to the receiving bank,
  • Qualified percentage rates that you’re charged when you accept a regular consumer card according to the standard terms of your agreement,
  • Mid-qualified rates that you pay when you key in a credit card’s number instead of swiping it or when you accept a special consumer reward card, and
  • Non-qualified rates that you pay for other transactions, such as accepting a business credit card.

As a high-risk merchant account holder, you’re likely to pay higher discount rates than you normally would. Processors vary widely, so always investigate each contract with a fine-toothed comb before you commit to anything.

What Should You Look for in a Payment Processor?

As with any business service, not all payment processors who claim to work on behalf of high-risk merchants offer comparable quality. Some are even known for attempting to defraud their clients or squeeze inordinate profits out of them by charging ridiculous fees. As you’re evaluating the options, take a close look at particulars like:

Holdbacks and Discount Rates

Rolling reserve percentages and discount rates are by no means standardized. These amounts have direct impacts on your profitability, so they’re likely to be one of your main concerns when comparing merchant accounts.

You may find it helpful to seek out payment processors that are willing to provide custom pricing terms. For instance, if you can get a better rate because of your superior credit history, you might just overcome the challenges of being in a high-risk industry.

Discount Rate Factors

While the overall discount rate you pay is important, so are the individual qualified, mid-qualified and non-qualified components. You should choose a processor that actually accommodates your business model. For instance, if you commonly accept credit cards from corporate clients, then it may be in your best interest to search for lower non-qualified rates.

One popular pricing model that you’re likely to encounter is known as interchange-plus. This billing structure charges you a merchant service commission, or MSC, plus a predetermined markup. The MSC typically varies depending on the type of transaction. Lots of merchants prefer this pricing plan because it’s more transparent.

Micropayment Fees

Some payment companies offer micropayment fees that are geared towards businesses that make frequent small transactions. These fees are often lower than the normal rates offered by the same processor. Micropayment fees are of particular interest to businesses like online product resellers that thrive on sales volume instead of big price tags.

Online Payment Gateways

Even if you’re not an e-commerce company per se, being able to accept payments online is fairly important for modern businesses. Once again, high-risk account offerings are extremely varied in terms of what kinds of digital payment gateways and integrations they include.

Online payment acceptance is nearly universal nowadays, but not all services are equivalent. For instance, some providers make it easier to automatically export accounting data to QuickBooks, create shopping carts and perform customer-service followups.

If your provider facilitates online payment acceptance, be certain that they help you comply with commonly accepted security norms. At a minimum, the account services should adhere to the best practices established by PCI DSS, or the Payment Card Industry Data Security Standard. Even better options may offer perks like transaction tokenization so that you don’t have to be responsible for keeping your customers’ information safe.

Businesses that commonly store information for recurring billing, shopping convenience and other purposes benefit greatly from built-in security features. In the long run, they could prevent you from becoming part of the next newsworthy security breach scandal. Your customers will also gain increased confidence in your brand when your digital store displays its security certifications.

Contract Flexibility

Depending on which high-risk merchant account you pick, you might be able to contract services on a month-to-month basis. Others force you to sign up for longer and threaten you with penalties for reneging on your commitment. Be aware that some annually billed plans include slight price breaks.

Charitable Payment Acceptance

To their surprise, some charities with 501(c)(3) status end up being denied for normal credit card processing services. When these organizations turn to high-risk merchant accounts, they should seek providers that offer special nonprofit discounts.

Price breaks can make a significant difference for organizations that receive lots of small donations. Charities may also benefit from contracting with processors that provide easy access to in-depth transaction data and receipts for tax purposes.

Physical Equipment

Many payment processors provide physical point-of-sale, or POS, terminals by default. Although they’re not the most exciting features of a high-risk account, it’s worth considering what they actually offer. Ask the following questions about your POS terminal:

  • Can you accept chip cards?
  • Can your debit card customers request cash back with their purchases?
  • Can you process digital wallet payments, like Apple Pay and Android Pay?
  • Will you need to complete special setup, installation or maintenance procedures?
  • Can you keep your current terminal instead?
  • Can you reprogram your new terminal if you switch account providers?

Associated Banking Services

While you may be doing the majority of your current business with individual credit card customers, being able to accept ACH and electronic checks can increase your organizational flexibility. These features come in handy for companies that sell their products and services to other businesses.

Take a look at the banking partners that each processor associates itself with. Some may offer a wider selection than others, which can make it easier to transition to a new high-risk account if you’ve already got a bank you prefer.

Offshore and Foreign Services

Many payment processors accept foreign transactions. If you’re thinking about expanding beyond the U.S. or becoming the next big e-commerce phenomenon, these providers are definitely worth considering.

Looking for a company that has a track record of catering to international businesses is a good start. Processors that work with multiple offshore partners may be better equipped to help your business go global.

Some experts recommend using domestic processors with established foreign connections as a safer alternative to signing up with offshore processors.[5] This is a good way to access foreign transaction services without needing to establish your company in a foreign jurisdiction.


The fact that a given processor makes you pay into a rolling reserve doesn’t mean that they won’t penalize you for chargebacks. Most high-risk merchant accounts come with lists of fees that are associated with various prohibited actions. There’s no anticipating every possible transaction mistake or disgruntled customer incident, so play it smart by choosing a company with penalties you can afford.

Service Quality

Your consumers aren’t the only ones who deserve excellent customer service. You’ve got a lot on your plate, and when things go wrong, you need to be able to rely on your merchant account provider to respond immediately.

You should be able to reach live customer service personnel within seconds. You never know when one of your cashiers might accidentally duplicate a transaction or when a customer might want to cancel an online purchase. Being able to respond to and resolve disputes is vital to building goodwill as you strive to grow your company.

Be wary of processors that get blasted by huge numbers of reviewers. Some firms are notorious for neglecting their high-risk customers, which is like adding insult to injury when you consider the fees they charge.

Good processors work to counter your risk by implementing robust quality-of-service features. For instance, some providers use load-balanced payment processing that intelligently routes transactions to lower the incidence of card-declined events. Others employ anti-fraud implementations that filter IP addresses that are known to represent threats.

Getting to Know Some Popular Processors

Of course, you may only care about some of the previous factors. You should pick whichever combined solution works for you. Some of the most popular high-risk merchant accounts, however, minimize the occurrence of mistakes and let you implement seamless payment processing without disrupting your business endeavors.

That being said, here are some high-risk merchant account providers that have received favorable reviews from other business consumers:

Durango Merchant Services

From its Durango, Colorado, offices, this processor offers features like e-commerce, mobile and retail accounts. It lets you accept ACH, electronic checks and payment forms such as telephone orders in addition to credit cards.

It also provides complimentary antifraud tools, and you’ll be assigned a permanent account manager when you sign up. Reviewers say that this company’s biggest strengths include its great customer service, fair pricing and rapid account approval times.

Payline Data

This Chicago-based company services high-risk merchant accounts as well as normal merchant accounts. In addition to providing services for retail, mobile and online processing, it features relatively transparent pricing structures that don’t lock you into contracts or make you pay for early termination.


Instabill provides accounts for merchants of various risk levels. This Portsmouth, New Hampshire, company has built a fairly robust network of offshore and U.S. bank partners, which may speed the approval process and ensure service quality. It also offers low discount rates, minimal setup fees, unrestricted sales processing, live customer support and no upfront deposits.

Will a High-Risk Merchant Account Make Your Business Stronger?

High-risk merchant accounts are essential for many companies, charities and entrepreneurs. As times and standards change, new industries are certain to benefit as well.

Even if you only use one of these accounts to build your organizational credit history, they’re important stepping stones that can help you reach the next stage. Those that let you get up and running quickly and provide support services may also reduce your overhead costs and relieve some of your accounting burdens at a critical point in your growth.

Curious about other forms of merchant accounts and payment processing options? Check out Lendvo’s resource archives. With numerous articles on the business topics that matter to your future, we make it far easier to succeed.