What Is a High-Risk Merchant Account

A high-risk merchant account is a type of payment processing account specifically designed for businesses that operate in industries considered to have a higher potential for chargebacks, fraud, or regulatory scrutiny. 

These accounts are often required for businesses in sectors such as online gambling, CBD sales, adult entertainment, travel services, e-cigarettes, subscription billing, and other industries with elevated financial or legal risk. 

Unlike standard merchant accounts, high-risk accounts typically come with stricter terms, including higher processing fees, longer settlement periods, and rolling reserves—where a portion of your revenue is held back by the payment processor for a period of time to protect against chargebacks. 

Businesses may also be required to meet more rigorous compliance and verification standards during the underwriting process. While obtaining a high-risk merchant account can be more challenging, businesses that fall into this category need to maintain uninterrupted payment processing capabilities and protect their operations from disruptions due to account closures.

Characteristics of High-Risk Businesses

High-risk businesses share several defining characteristics that set them apart from low-risk or traditional businesses in the eyes of banks and payment processors. These characteristics contribute to why such businesses are subject to stricter scrutiny and more demanding merchant account requirements. Here are the most common traits:

1. High Chargeback Rates: High-risk businesses often experience a greater volume of chargebacks due to customer disputes, recurring billing issues, or dissatisfaction with products or services.
2. Recurring or Subscription Billing Models: Subscription-based services tend to have higher cancellation and refund rates, which increases the likelihood of disputes and chargebacks.
3. Operating in Heavily Regulated or Grey Legal Areas: Industries like CBD, gambling, adult entertainment, and crypto operate in sectors where laws and regulations vary by region, increasing legal and compliance risks.
   
4. Selling High-Ticket or High-Value Items: Businesses that sell expensive products or services (like luxury goods, travel packages, or coaching programs) face greater financial exposure and customer scrutiny.
5. Poor or Inconsistent Credit History: A business owner or company with a history of financial instability or bankruptcy can be flagged as high-risk.
6. High Volume of International Transactions: Serving customers across borders increases the risk of fraud and regulatory complications, especially when currency conversions and foreign banking systems are involved.
7. New or Unproven Business Model: Startups or businesses with no established processing history may be considered high-risk until they demonstrate consistent, stable operations.
8. Higher Fraud Risk: Certain industries are more prone to fraud, whether through stolen credit cards, fake accounts, or identity theft, which puts payment processors at greater risk.
9. Low Customer Satisfaction or Reputational Issues: Businesses with a history of poor reviews, complaints, or lawsuits may be flagged as high-risk due to their increased potential for disputes.
10. Unusual Sales or Fulfillment Practices: If the business has delayed delivery times, preorders, or does not deliver goods immediately after purchase, it can raise concerns about fulfillment risk.

These characteristics don’t necessarily reflect poorly on the business’s legitimacy or ethics—they simply indicate that the business operates in a riskier environment from a financial and regulatory standpoint. Understanding these traits can help business owners prepare for the requirements of high-risk merchant accounts and take steps to mitigate potential risks.

Which Businesses Are Considered High-Risk

Businesses are considered high-risk based on several factors such as industry type, chargeback rates, regulatory challenges, and financial volatility. Here are some common types of high-risk businesses:

1. Adult Entertainment – Including websites offering adult videos, live cams, or related content.
2. Online Gambling and Gaming – Casinos, sports betting, fantasy sports, and lottery services.
3. CBD and Cannabis Products – Even if legal, these businesses face legal restrictions and varying regulations.
4. Travel and Tourism – Especially businesses offering future-dated bookings like travel agencies, airlines, or tour operators.
5. Subscription-Based Services – Products with recurring billing models, which tend to have higher chargeback rates.
6. Nutraceuticals and Supplements – Weight loss pills, vitamins, and herbal supplements can raise concerns about product claims and safety.
7. Debt Collection and Credit Repair – These industries often deal with financially distressed consumers and face heavy scrutiny.
8. Cryptocurrency – Exchanges and trading platforms are considered volatile and subject to regulatory ambiguity.
9. E-cigarettes and Vapes – Heavily regulated and frequently targeted by chargebacks due to age-restriction concerns.
10. Telemarketing and Direct Response Marketing – Known for higher cancellation and refund rates.
11. Forex and Binary Options – High-risk due to speculative trading and regulatory issues.

These businesses are often flagged due to a combination of legal complexities, high fraud risk, reputational concerns, and financial unpredictability. As a result, they typically require specialized high-risk merchant accounts to ensure secure and reliable payment processing.

Advantages of High-Risk Merchant Accounts

High-risk merchant accounts offer several advantages for businesses operating in industries that traditional payment processors often avoid. While they come with stricter terms and higher fees, these accounts provide the functionality and flexibility that support business growth. Here are the main advantages:

1. Access to Payment Processing: The most important benefit is that high-risk merchant accounts allow businesses in restricted or high-risk industries to accept credit and debit card payments.
2. Support for International Transactions: Many high-risk merchant accounts are equipped to handle international payments, multiple currencies, and cross-border transactions, allowing businesses to scale globally and serve a broader customer base.
3. Flexible Business Models Allowed: Subscription-based services, adult content providers, and companies offering high-ticket items or delayed delivery often can't get approved through standard merchant accounts. High-risk accounts accommodate these unique models.
4. Higher Chargeback Thresholds: Standard accounts are often shut down if chargeback rates exceed 1%. High-risk merchant accounts allow for a higher tolerance, giving businesses more breathing room to manage disputes without losing payment capabilities.
5. Rolling Reserves for Risk Management: While some see rolling reserves as a downside, they actually serve as a risk buffer that can help keep your account in good standing and minimize the risk of termination.
6. Custom Fraud Protection Tools: High-risk providers often offer advanced fraud detection and chargeback management tools to help businesses monitor transactions and reduce financial losses.
7. Stable, Long-Term Processing Relationship: Once approved, a high-risk merchant account provides greater stability, as the provider understands the nature of your business and is less likely to shut down your account unexpectedly compared to standard processors.
8. Opportunity to Build a Reliable Processing History: With consistent transaction volume, responsible business practices, and low fraud rates, businesses can strengthen their credibility and potentially negotiate better terms over time.

Disadvantages of High-Risk Merchant Accounts

High-risk merchant accounts come with several disadvantages that businesses must carefully consider before applying. These accounts are designed to protect payment processors from financial loss, so they often include strict terms, higher costs, and added complexity. Here are the main drawbacks:

1. Higher Processing Fees: High-risk merchants typically pay significantly more in processing fees compared to standard merchants. This includes elevated transaction fees, monthly fees, and chargeback fees, which can reduce overall profit margins.
2. Rolling Reserves and Delayed Payouts: To protect against chargebacks and fraud, payment processors often hold a percentage of your revenue in a rolling reserve. Payouts may also be delayed by several days or even weeks, which can affect cash flow and operational stability.
3. Strict Contract Terms: High-risk accounts usually involve long-term contracts with early termination fees. These agreements often favor the provider and offer less flexibility to the merchant.
4. Difficult Approval Process: Getting approved for a high-risk merchant account involves extensive documentation, detailed underwriting, and close scrutiny of your business model, credit history, and processing history. The process can be time-consuming and challenging, especially for new businesses.
5. Account Freezes or Terminations: Even though high-risk accounts are more tolerant of chargebacks and fraud, consistent issues or sudden spikes in volume can still trigger account freezes or closures, disrupting your ability to process payments.
6. Reputational Stigma: Being labeled as a "high-risk" business can impact your brand’s reputation in the eyes of banks, partners, and even customers. Some may associate the label with unethical practices, even if your business is legitimate and compliant.
7. Limited Provider Options: Not all payment processors offer high-risk merchant accounts. This limited pool means you may have fewer options to choose from, which can lead to less favorable terms and weaker customer service.
8. Chargeback Monitoring and Penalties: You’ll likely be subject to stricter chargeback monitoring. Exceeding certain thresholds can trigger penalties or even lead to account termination.

Despite these disadvantages, high-risk merchant accounts are often the only viable option for businesses in restricted industries. Work with a reputable provider, maintain good payment practices, and actively manage chargebacks to minimize risk and avoid account disruptions.

How to Choose the Right High-Risk Merchant Account

Here are some important steps and considerations to help you select the best provider:

1. Understand Your Business Needs: Clearly identify your industry’s specific risks and requirements. Consider your average transaction size, sales volume, international customer base, and whether you use subscription or recurring billing models. This helps narrow down providers who specialize in your business type.
2. Compare Processing Fees and Costs: High-risk accounts generally have higher fees, but these can vary widely. Compare transaction fees, monthly fees, setup fees, chargeback fees, and rolling reserve requirements. Look for transparency in pricing to avoid hidden costs.
3. Evaluate Provider Reputation and Experience: Choose a payment processor with a proven track record working with high-risk businesses in your industry. Look for reviews, testimonials, and case studies. Experienced providers better understand the regulatory landscape and risks you face.
4. Review Contract Terms Carefully: Pay attention to contract length, early termination fees, and any automatic renewal clauses. Flexible terms can save you from long-term commitments if the service doesn’t meet your needs.
5. Check Fraud and Chargeback Prevention Tools: Robust fraud detection and chargeback management tools are essential. The right provider should offer real-time monitoring, customizable fraud filters, and support for dispute resolution to protect your revenue.
6. Assess Customer Support and Service: Responsive, knowledgeable customer support can make a big difference, especially when dealing with payment issues or disputes. Test their support channels (phone, chat, email) and check responsiveness before committing.
7. Consider Integration and Technical Compatibility: Ensure the merchant account integrates smoothly with your existing e-commerce platform, shopping cart, or point-of-sale system. Compatibility reduces technical headaches and streamlines your payment workflow.
8. Understand Payout Schedules and Reserve Policies: Clarify how often you’ll receive payouts and how much reserve the provider holds. Shorter payout times and reasonable reserve percentages improve your cash flow management.
9. Ask About Account Stability and Termination Policies: Find out the provider’s policies on account freezes or terminations. A stable provider with a fair approach to risk management reduces the chance of sudden disruptions.‍
10. Request a Trial or Demo: If possible, ask for a trial period or demo to experience the platform firsthand. This helps you evaluate usability, reporting features, and overall suitability.