Understanding High Risk Merchant Accounts and Credit Card Processing

In the world of credit card processing, some merchants and industries are seen as being high risk. As a result, credit card processors will often reject such merchants, but there are always options available. There are a number of providers who specialize in accounts for high risk merchants, and many are both efficient and reliable.

Which Types of Merchants are Considered High Risk?

Whether or not a merchant is considered “high risk” is determined by the risk department and their underwriting guidelines. When these guidelines are stringent, high risk merchants are unlikely to be approved. When the guidelines are less restrictive, then a merchant account can be authorized. Merchants may be designated high risk for a number of reasons. For example, if a merchant operates in an industry that is known for having lots of chargebacks, their application may be rejected.

Other factors that could cause a merchant to be considered high risk include having the business based offshore, operating in an industry known for fraud, or having bad credit. If a merchant sells products that are considered grey market, or they use questionable marketing techniques, this could also lead to them being denied a merchant account.

Rates for High Risk Merchants

Due to the nature of the industry, high risk merchants should expect rates which are much worse than merchants that operate in low risk industries. Additionally, the agreement terms will often be less than desirable. Because high risk merchants don’t have many providers to choose from, this means they have very little negotiating power. This is why it is crucial for merchants to review their contracts carefully. Specific items to pay attention to include termination fees and any incidentals. Some providers will expect a rolling reserve, and if this is the case, you should determine the amount and length of time it will remain in effect.

Many high risk processors will demand reserves so that they protect themselves in the event that the merchant closes their business, has a bunch of charge backs, or attempts to defraud them. A merchant who operates in a high risk industry must seek out a provider who will accept their business, give them a decent rate and provide reliable service.  Merchants must choose their processor carefully, because there are many who are unethical, and will take advantage of those who are unwary. While many high risk industries are lucrative, the problems associated with them can make it difficult for merchants to find a reputable processor.