In today’s digital age, accepting credit card payments is essential for businesses to thrive. However, for businesses that are classified as high-risk, finding a payment processor can be a challenging task. However, not impossible. In fact, there are benefits to finding a suitable merchant account for high-risk businesses.
Securing a high risk merchant account ensures–no matter the industry your business is in–easy payment from clients, whatever the method. High-risk payment solutions put your business in a position where it can accept as many methods of payment as possible.
In this article, we will explore what it means to be a high risk merchant. We’ll also discuss the benefits and disadvantages of having a high risk merchant account. Additionally, we’ll cover how to obtain a high risk merchant account. Finally, we’ll address frequently asked questions about high-risk card processing.
What Payment Solutions Can High Risk Merchant Services Offer?
As a merchant who has been approved for a high-risk bank account with an acquirer, you should be able to accept all forms of payment. Depending on your payment provider. You will first want to be sure the high risk merchant services provider you choose offers all payment avenues.
That means not only accepting cash for your business. It also means accepting credit cards, debit cards, eChecks, and other types of digital payments. For some businesses, this might even mean accepting newer forms of payment, such as cryptocurrencies.
Depending on your business model, the right high-risk payment processor should be able to supply you with eCommerce virtual payment gateways, mobile processing, in-store terminals, ACH processing, and a variety of POS integrations to keep your business running smoothly.
Is Acquiring a Merchant Account Difficult?
At first, setting up a high-functioning payment processing system is something that many aspiring (and current) business owners assume they will be able to do effortlessly. However, if your business is involved in any of the industries that might be considered high-risk, you may run into problems when inquiring with more traditional merchant service providers.
If your business—for whatever reason—is unable to accept credit and debit card payments, you will likely run into some problems. In fact, you might even find yourself in a situation where you have to turn away otherwise interested clients simply because you cannot accept their payments.
It is important for your business to proactively have a system in place rather than losing out on potential profits. These types of businesses must consider working with a high-risk merchant service provider to process credit cards.
Setting up a merchant account with an acquiring bank that is partnered with a high-risk merchant service provider can help any high-risk business to access the basic credit card, debit card, and payment processing services they need.
While using a high-risk merchant account will usually impose a modest fee, a high-risk merchant platform will help make it considerably easier for your business to achieve its long-term financial goals.
What is the Definition of a High Risk Merchant?
There is no universally accepted definition of which businesses are considered high risk merchants. Generally speaking, the types of businesses that are considered riskiest will be defined by credit card companies and other members of the lending community.
The most common type of high risk merchant is a merchant that operates in any industry that has a notoriously high chargeback ratio, defaults, fraud, and other undesirable issues.
Of course, these industries still exist and make debit and credit card sales every day. But, a large portion of the companies involved in these industries will need to use an alternative payment processing solution, such as those provided on high risk merchant account platforms.
In addition to industry-specific risks, credit card companies and other payment processors might also consider risks that are inherent to the business. For example, if a business has a history of missing payments, initiating chargebacks, or bouncing tracks, the business will likely be riskier to work with. Having a poor or limited credit history could also be problematic.
Still, it is important to note that these companies are not without their fair share of high risk merchant account options. ECS Payments, for example, is a platform that makes it easy for high-risk merchants to create an account, manage their infrastructure, and access the ongoing payment processing support that they need.
High Risk Industries Most Commonly Associated with High Risk Merchant Accounts
To determine if a business would need a high-risk merchant account, processors will usually look at both the history of the industry that the merchant is involved in. They will also examine the business and business owner’s history.
As a result, there is a very wide variety of businesses that could potentially be considered high-risk merchants. This can include various types of fantasy sports businesses such as fantasy football, direct marketing merchants, subscription-based businesses that offer automatic recurring payments, bail bondsmen, CBD wholesalers, pharmacies, and more.
If you are concerned that your business’s industry type may need a high-risk merchant account, take a look at the following list. The following list contains common high-risk industries:
- Adult Industry
- Bail bonds
- Cannabis (including CBD and Delta THC)
- Coaching, seminars, and online education
- Collection agencies
- Credit repair services
- Dating services
- Debt consolidation
- Digital goods
- Direct marketing/continuity subscription merchants
- Fantasy sports
- Health supplements
- Multi-level marketing
- Non-Fl account loading
- Pawn shops
- Pharmacy merchants
- Quasi cash
- Timeshare relief and exit services
- Tobacco & nicotine
- Travel services
High-risk status can also apply if the industry involved is relatively new. This includes certain parts of the tech and eCommerce communities.
Do I Need to Create a High Risk Merchant Account?
Whether or not your business needs to create a high-risk merchant account will depend on several different factors. It’s not enough to simply look at the industry and assume that alone will place it in a specific risk category.
For example, a large grocery store that adds a line of CBD products would most likely not be suddenly classified as a high-risk merchant, even if the new product line industry is riskier.
At the same time, a business in a seemingly low-risk industry (say, clothing retail) that has a history of excessive chargebacks—for whatever reason—might face rejection for a traditional merchant account.
Moreover, if your business processes at a high volume, merchant accounts might be difficult to find with traditional payment processors. High-volume monthly sales ($20,000+) or high transaction amounts ($500+ a ticket) can lead to high chargeback ratios. Consequently, a high-risk merchant account may become necessary.
Naturally, the first two questions you should ask yourself are:
- Are the goods, services, or business model that I’m providing considered risky in any way? (Be honest with yourself—even if you have great intentions for your business, Visa and Mastercard might still be hesitant to offer support)
- Does my business have the structure and history that will make it easy for payment processors to work with me?
If there is any component of your business or business model that is seemingly less than perfect, then you might need to consider creating a high-risk merchant account.
Fortunately, as we will further explain, there are currently many different options available.
Key Advantages of Establishing a High-Risk Merchant Account
If you are considering starting a new business—or already own a business—you might be curious about the benefits and drawbacks that come with opening a high-risk merchant account. Here are just a few of the reasons why merchants across a wide range of industries make the decision to open a high-risk merchant account.
1. Access to More Customers
Of course, the most obvious reason to establish a high-risk merchant account is that—as a merchant—this account will make it considerably easier to expand your customer base. Why? Because billions of customers around the globe use credit and debit cards every day to make purchases.
If your business is unable to accept payments initiated with these extremely common methods, it will end up losing out on potential revenues. By accepting common payment methods (even more important for eCommerce, digital businesses, and subscription merchant accounts), you’ll never have to say “no” to someone who is sincerely interested in buying your product or service.
2. Existing Credit History is Not an Issue
As a business owner, your payment history can affect a lot of things. But it shouldn’t affect whether or not you can accept certain types of payments. There is no reason to let an imperfect credit history get in the way of your current enterprise.
By establishing a high-risk merchant account, your business can increase its reach in ways that might otherwise be out of reach. These accounts are ideal for businesses that have run into previous financial problems, such as bankruptcies, missed payments, judgments, and many others.
For clarity’s sake, this doesn’t mean that with bad credit, merchant account instant approval is readily available. It just means that If you have bad credit, low-risk processors are less likely to approve your merchant account compared to a high-risk processor.
3. Minimal Fee Structures
One of the leading concerns that businesses have about high-risk merchant accounts is that these accounts—at least when compared to alternative payment processing systems—have higher merchant fees. However, a closer look at the broader industry reveals that high-risk merchant accounts are only marginally more expensive than their lower-risk counterparts.
In fact, if you find the right high-risk merchant account platform, your business can establish its own account with absolutely no setup fees. After that, you will likely have minor processing fees. Ultimately, the difference between high-risk and low-risk accounts could be as low as just a few basis points.
4. Seamless Integration
Having access to an efficient integration process is essential for any business that wants to quickly increase access to its goods or services. The longer it takes to integrate—and the more complicated the integration— the longer it will take for your revenue to pour in.
Fortunately, integrating a modern electronic payment processing system is easier than ever before even with high-risk merchant accounts. With just a few simple setup steps and assistance from your payment provider, your business can immediately begin accepting credit and debit card payments.
Furthermore, nearly all POS systems and payment gateways can be coordinated and managed from a single portal.
5. Efficient Funding
In addition to seamless integration, it will also be important to consider just how efficiently funds can be accessed as needed. Fortunately, even for companies that are high-risk, funds are deposited directly into your high-risk merchant account within a few days after your batch closure.
6. Increased Credibility
Let’s be honest, one of the most common challenges a company faces in any industry deemed high-risk is its credibility among its potential customers. Of course, there are many ways to establish this sort of credibility.
Offering a good product or service experience is a great place to start. But businesses also need to make it easy to make various different types of payments. Otherwise, they might start asking questions. With an established payment processing platform, a high-risk merchant account can immediately appeal to customers with easy transaction processing offered by card payment technology.
7. Payment Diversity
There are many different ways that businesses can expand their empire. In some cases, that might involve offering a new product line. In others, it might involve entering a new market. But in every case, it is clear that the more payments your business can accept, the more money you can potentially make.
And in an increasingly diversified global economy, establishing broad levels of payment diversity is incredibly important. Businesses that cannot accept certain types of payments will end up losing customers. Customer loyalty alone will not be enough. That’s why high-risk merchants—or any merchants, for that matter—must continually seek out new ways to receive payments in exchange for their products or services.
8. Ongoing Support
Lastly, it is important to recognize that creating a high-risk merchant account involves a lot more than just setting up a system. It also involves continuous management of your payment processing solutions and making the appropriate adjustments along the way.
With the right high-risk merchant services provider, you can be confident that any potential concerns can easily be solved. If you have questions or need guidance when managing your platform, customer support teams are readily available.
ECS has knowledgeable in-house customer support with extended hours ready to assist all our high-risk merchants. This support can be especially valuable if the industry your business is based in is facing sudden regulatory changes.
What Are the Disadvantages of a High-Risk Merchant Account?
While high-risk merchant accounts can provide all the above benefits for payment processing in high-risk industries, there are several disadvantages to consider or be aware of. These include higher fees, longer underwriting processes, the imposition of rolling reserves, limitations on high-risk merchant solutions, and the potential for reputational risk.
Let’s take a closer look below for a more in-depth description of each of these disadvantages.
Because high-risk credit card processors are taking on more responsibility and adding risk to their reputation, legal status, and financial well-being by associating themselves with certain merchants, there are high-risk merchant account fees that these businesses must be responsible for.
These high-risk merchant fees are designed to cover any additional costs and losses that a high-risk merchant processor may acquire by approving certain merchants for high-risk merchant processing accounts.
Longer Underwriting Process
High-risk merchant providers typically require a longer underwriting process for high-risk accounts. The underwriting teams must carefully evaluate merchants to ensure that the payment processing company can effectively manage its financial risk.
Compared to traditional merchants, underwriters will conduct a more thorough review of a high-risk merchant’s financial statements, credit history, and business plan. They may also require additional documentation for further information.
All of this may delay merchant account approval for a high-risk merchant payment gateway or account.
Many high-risk merchant payment processors are known to implement something called a rolling reserve. A rolling reserve is when a portion of the merchant’s daily sales are held for a certain period of time to cover potential chargebacks or other financial losses. Over time the reserve is released once a merchant has shown they are reliable to make their payments and if they have not received chargebacks for a certain length of time.
Limited Payment Processing Options
Credit card processing for high-risk merchants may pose some limitations regarding the payment processing solutions available to their industry or risk level. Limitations could apply to what method of payment a high-risk merchant can use or which payment processors they can work with.
This can be especially true for high-risk eCommerce merchant accounts and additional solutions such as recurring billing. These limitations can limit high-risk merchants’ business. This means they will need to learn how to adapt their business model and be flexible with the available options.
Working within a high-risk merchant account can have potential disadvantages, such as being viewed negatively by certain clients, suppliers, or partners, which can impact a business’s reputation. It’s important to carefully consider your payment processing options and find the best high-risk merchant processor with a good reputation that can help mitigate your risks.
What About Processing ACH Payments as a High-Risk Merchant?
ACH (Automated Clearing House) processing is a digital payment processing solution. It allows merchants to electronically debit or credit funds to and from a customer’s bank account by connecting their bank account and routing numbers. Some high-risk merchant accounts will not offer eCommerce, card-not-present, or ACH transactions. But, for those that do, these electronic transfers can either be used for a one-time payment or for recurring payments.
For high-risk merchants, using ACH processing can have several benefits, including the following:
Lower Transaction Fees
ACH processing can save high-risk merchants, well, any merchant for that matter, a pretty penny on payment processing fees. Credit card processing has a whole list of associated fees, including interchange rates, per transaction fees, wireless fees, etc. Conversely, ACH transactions have a flat-rate singular fee per transaction.
Unlike interchange rates, ACH fees do not fluctuate depending on the type of card, or how the payment was taken. There is only one method. Bank account to bank account. Thus, the fee is constant and far less costly than credit card rates.
Increased Payment Flexibility
With ACH payment processing solutions, high-risk merchants can expand their customer base and increase revenue. It offers more payment options for clients who may not want to use or may not have a credit or debit card on hand. It can also offer easy online payment options and recurring billing.
Reduced Fraud Risk
ACH payments are solely electronic. Which means there is no physical card involved. This means there is no way a criminal can take a customer’s payment information and use it for fraudulent activity and unauthorized purchases. Because ACH is done all through connecting bank account numbers, there is less risk of fraudulent activity compared to other payment methods.
Faster Payment Processing
ACH payments typically clear faster than traditional check payments. Though not as fast as credit card payments which are approved instantly and typically settled within 24 hours. ACH payments do take a few business days to process, clear, and settle. But it is generally faster than waiting on paper checks to process.
Not to mention having to drive to the bank or scan the check with a mobile deposit. ACH transfers are all automatically done online. All these factors can help high-risk merchants improve their cash flow.
Improved Customer Experience
ACH processing provides customers with a convenient and easy payment alternative. As a result, high-risk merchants can improve customer experience with ACH and build the customer base with client loyalty.
Overall, high-risk ACH processing can provide not only a high-risk online payment processing solution alternative to credit card processing. But it also has many benefits that can help high-risk merchants reduce fees, streamline their business, manage their risk, and increase customer experiences. All resulting in an improved bottom line.
So, How Do I Go About Getting Myself a High-Risk Merchant Account?
Ok, so now that we’ve gone over all the disadvantages and benefits of high-risk merchant accounts, you may have decided this is the best route for you to take to accept digital payments from your clients. So, you may be wondering how you can go about getting one for your business.
To obtain a high-risk merchant account, there are a few steps that your businesses can take to increase their chances of approval. Offering you a better payment processing experience in general. Follow along as we outline the best practices you can take when applying for a high-risk merchant account.
Find a Reputable Payment Processor
First and foremost, it is imperative to do your research. You want to be sure you compare and contrast different merchant service providers to find one that meets all of your needs and maintains a positive reputation in the industry.
As mentioned earlier, working with a reputable payment processor that specializes in high-risk merchant accounts is essential. Processors with experience working with high-risk businesses can provide proper guidance on mitigating risk and preventing chargebacks.
Provide Detailed Information
Once you have located and determined the best high-risk payment processor for your business, you will need to apply for your merchant account. When applying for a high-risk merchant account, you should be prepared to provide detailed information about your business. Such information includes your financial statements, payment processing history, and your business plan. A solid business plan at that.
All of this information will help your payment processor evaluate your risk level to determine whether you are a good fit for their high-risk merchant solutions.
One of the biggest concerns a payment processing company has is a merchant’s risk factor. What are they doing to obtain excessive chargebacks or prevent them? Do they have any fraud prevention measures in place?
High-risk businesses should proactively prevent fraud and chargebacks. This can be achieved by implementing effective fraud prevention measures in their company. Not to mention clearly communicating their return and refund policies to customers.
Should you have the proper procedures in place and appropriate management and maintenance of these procedures, your high-risk merchant account should be more easily approved.
Be Prepared for Fees
As we have warned before, high-risk merchant accounts will generally come with higher credit card processing fees compared to traditional merchant accounts. Not only will these fees be higher for transactions, but high-risk merchants can also experience higher early termination fees, set-up fees, and any other fees associated with the management of high-risk merchant accounts.
With this fair warning, businesses should be prepared to pay these fees to cover the cost of the risk taken on by your payment processor. There really is no way around it, unless you can change your business plan to flip your company to be able to obtain a traditional merchant account.
Do I Need a Certain Bank Account For High-Risk Business?
While there is no requirement for a specific type of bank account for high-risk businesses, it is recommended that high-risk merchants work with a bank that has experience in serving high-risk industries. These banks understand the unique needs and challenges that high-risk businesses face and can provide specialized services that can help mitigate risk and improve financial management.
Moreover, some banks may offer specific high-risk merchant account services, such as chargeback protection, fraud prevention, and transaction monitoring. Take note, some financial institutions may require higher fees or high reserve amounts for high-risk merchant accounts. Therefore, it is important to research and compare different options to find the best fit for your business.
Banks and financial institutions may consider certain industries higher risk, such as online gambling, adult entertainment, and e-commerce businesses. Therefore, it is important to fully disclose your business type and industry when applying for a merchant bank account to ensure that you are working with a bank that is comfortable serving your specific needs.
Should you fail to be 100% transparent with your financial institution, you may end up having a frozen or canceled merchant bank account and, therefore, a stop to your cash flow. This would entirely disrupt your business and create a negative impact.
Something that could have been avoided in the first place should you have disclosed your merchant information to your bank ahead of time. If you’re concerned that the bank you are applying to will not serve you, it is better to know upfront so you can find one who can before it is too late.
Setting Your High-Risk Merchant Account Up for Success
In the end, awareness of the level of risk involved in a business venture is necessary. And if the business is involved in a high-risk industry or if the business has a less-than-perfect credit history, the business itself might face rejection from traditional payment processors.
But even in the face of these rejections, businesses can still create a payment processing system that will maximize its ROI. That’s why, as many existing companies can attest, having access to a high-risk merchant account can be tremendously beneficial.
In conclusion, obtaining a high-risk merchant account can be a challenging task for some businesses that are classified as high-risk. However, by working with a reputable payment processor, providing detailed information, mitigating risk, and being prepared for fees, businesses can increase their chances of being approved for a high-risk merchant account and be prepared how to have the best payment processing experience with their provider for the long haul.
If your business can avoid the label of “high risk” it is best to do so. However, if this is unavoidable due to your industry or other unchangeable factors, the benefits of processing with a high-risk merchant account far outweigh the consequences of accepting cash or check only.