High-Risk Merchant Account: Expectations vs. Reality

High-Risk Merchant Account: Expectations vs. Reality

When your business is labelled as high risk, you start facing a lot of trouble — the number one problem being the payment methods. Since your business is considered to be high-risk, local banks and regular company might not accept your merchant account application, mainly because high-risk merchants incur a lot of chargebacks and they fear for fraudulent activity too. But, the good news is there is many high-risk merchant account service provider who provides their services gladly.

Why your business is high-risk?

There are many reasons why your business might be considered high-risk. Either you fall under one of the high-risk industries, or there could be various other factors as well, such as bad credit history, a lot of chargebacks, and fraud.

Now, just because one provider considers you as high-risk, doesn’t mean all the other providers will do the same. In fact, there are some providers who will accept your high-risk merchant account and will offer your service.

High-Risk Merchant Account

Some of the industries which fall under high risk are as follows:

  1. Real estate
  2. Travel
  3. Automotive machines
  4. CBD
  5. Debt management agencies
  6. International trade
  7. Companies who sell their products cross border

To explain this in simpler language, if your business holds uncertainty in terms of business, then you might be classified as “high-risk”. Now, high-risk merchant account will have some of the expectations, let us focus on them first and later we will discuss about the reality.

Pricing expectation

The rates as a high-risk merchant account will be a little higher than the average merchant accounts. The reason behind this is that you deal with unsatisfactory terms and hence the rates are higher in the end. But, as a high-risk merchant, you don’t really have any other options.

Depending on your business, some merchant account provider may charge you 2 to 5 percent per transaction however if you are considered to a lot riskier, then you might even be charged 15 percent. Now, the payouts again depend on your service provider. Some allow the payout to happen daily, while some may enable payouts once every week or two weeks. Your service provider will be able to tell you about the payouts better; however, this is what you can expect.


Another thing that will be included is the reserve. It is basically a specified percentage that the processor of the transaction will keep for himself for the number of sales you do. This is kept for risk mitigation. Now, the reserve percentage will be decided during the application process of your high-risk merchant account.

Here are some of the reserve:

Up-front reserve

Rolling reserve

And Capped reserve

All of the reserves as mentioned above will be held for a specific amount of time (rolled) or until you reach the targeted amount (capped). Or you might have to pay the service provider before you begin the up-front agreement.

The reserve is also used for chargebacks. In case there is a chargeback then the reserve amount that has been decided remains secure with the account. But, in case a transaction gets disputed then reserve can be used to pay the consumer.

Before you accept to work with a particular service provider, make sure to talk about your business with him. Let the provider know what your expectations are and what you need. Do a background check to be confident when it comes to expectations and always ask the right questions especially when it comes to fees.

Now, since there are a few expectations from the merchant account provider, there are a few harsh truth that you should know about too. Everything is moving towards digitalization, and hence we have to make sure that we can accept online transaction through credit and debit cards.

Here is some reality about high-risk merchant account.

  • Since paying online is convenient and also people nowadays don’t really want to pay in cash, there will be more than 50% of your customers who would like to do the digital transaction. Majority of the people who have shopped online last years has preferred paying online. Somehow when they pay online, it helps them to keep a track on where the money is going because they can see it clearly on their bank statement. Hence, the reality is your high-risk business will need a payment gateway to allow your customers to pay online.
  • Another truth is around 70% of the population uses an online transaction to pay for goods or services. If you are not letting your customers pay online and accepting only cash, then the truth is most of your competitors’ area already earning more than you and generating revenues. Only 25% of companies actually accept cash as payment, so if you fall under the 25% then you are losing a genuine opportunity to stand out in the market.
  • There will be chargeback and you should be prepared for it. You should keep the chargeback ratio below 2% however it could go up to 6% as well. A majority of chargeback incur when a customer lodges a fraud case and it is the merchant who has to bear the loss. Hence, this is one of the harsh realities of running a high-risk merchant account. The best way to avoid this is to let your customers know about their transaction and be in touch with them to ensure that they don’t file a chargeback case. Also, be aware that there will be a few customers who will issue chargeback even though they know what they purchased.
  • Another reality is getting a high-risk merchant account is not easy. They follow a lot of protocols and you have to make sure that you have a good credit history before applying for one. Don’t worry, if your business is profitable and your provider sees growth in it, they will not deny your merchant account application. However, it can take weeks to get your application approved and you should be prepared for that.

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