What is a High-Risk Merchant Account, and How Does it Work?

What is a High-Risk Merchant Account, and How Does it Work?
By max April 12, 2024

The pandemic has changed the preferred payment method for most customers. Gone are the days when cash was used as the primary and most common form of payment. Today, the payment landscape has witnessed a drastic transformation. From cash to cashless, the industry has changed a lot. Nowadays, customers want businesses to accept various payment options so they can pick the payment channel that suits their needs.

Credit cards, for instance, have grown in popularity lately and are a preferred mode of payment for a vast majority of customers buying things online, in-store, and over the phone. To cater to this ever-increasing demand for electronic payments, businesses need a merchant account that facilitates credit card processing. The question is, what is a high-risk merchant account, and what does it mean for SMBs and large-scale organizations looking to streamline their payment ecosystem?

Understanding High-Risk Merchant Account

Understanding High-Risk Merchant Account

Merchants are categorized into high-risk, medium-risk, and low-risk categories based on the industry they operate in, their processing history, credit score, and how established their business is. If you work in a sector associated with legal restrictions, social controversies, and the risk of high chargeback, acquiring banks or payment processors might label you as a high-risk business. Your transaction size and volume also determine your risk level.

A furniture shop, for instance, might sell legally acceptable products, but due to the nature and size of the transactions conducted at these stores, they might be considered risky. Sadly, merchant service providers are often reluctant to accept the merchant account application of businesses that fall into the high-risk category. Banks do not want to bear the liability of clearing chargeback or facing legal issues if a business shuts down or engages in an illegitimate transaction. This limits merchants’ options when it comes to choosing a reliable payment processor. Even if a merchant service provider accepts a high-risk business, they will most likely impose strict conditions and reserve requirements to offset the risk associated with these merchants.

Understanding high-risk merchant accounts, how they work, and the guidelines for getting your merchant account application approved by a reputable payment processor is crucial to facilitating a seamless payment experience for your customers. In this post, we’ve explained everything you should know about high-risk merchants and how they can find a payment processor.

What Makes You a High-Risk Merchant?

What Makes You a High-Risk Merchant?

There are no specific criteria for categorizing a business as high or low risk. It depends on the payment processor you choose and their evaluation criteria. Some processors reject the applications of high-risk merchants straight away, while others are willing to work with them only if they can provide detailed documentation and meet the reserve requirements. Eventually, the payment processor will decide whether to accept or reject a merchant’s account application based on their internal evaluation criteria. Typically, some industries are considered risky because of the nature of the business, the risk of a high chargeback ratio, and other factors. Here are a few:

  • Tobacco and cigarettes
  • Alcohol
  • Gambling
  • Adult content
  • Debt collection and credit repair agencies
  • Furniture
  • Hunting equipment suppliers
  • Guns and weapon
  • Pawn shops
  • Non-profit organizations
  • Tech support
  • Vape and e-cigarettes
  • Travel companies
  • Multi-level marketing
  • Fantasy sports
  • Cannabis
  • Electronics
  • Accounting
  • Bail bonds
  • Insurance

In addition to these, subscription-based service providers fall into the high-risk category. Note that the industry type is not the only deciding factor here. You might be running a simple retail store but still be classified as high-risk because of poor processing history or a high chargeback ratio. Here are a few other factors that can make you a high-risk merchant.

High-Ticket Transactions

Businesses processing high-ticket or large-sized transactions are at an increased risk of experiencing fraud, as attackers often target such merchants. There’s no fixed threshold for high-ticket transactions, but most payment processors might consider your business risky if the average transaction size at your store is above $500.

High Chargeback Ratio

Chargeback arises when a customer issues a request for the reversal of the credit card transaction. This happens when a customer is dissatisfied with the product, or someone steals their credit card and misuses it to process a transaction. Simply put, if a customer believes they are charged for a product or service they didn’t buy or use, they might issue a chargeback.

The merchant is supposed to issue a refund. Excessive chargeback can put your company in a financial loss, which might put your payment processor at risk. If your business shuts down due to bankruptcy or for other reasons and you have a pending chargeback, your payment processor will have to clear that. That’s why merchants with a high chargeback ratio are classified as high-risk.


A newly started business with no processing history is also labeled as high-risk. Since the payment processor cannot collect data about the business’s processing history, it can’t evaluate your credibility and will thus consider you a high-risk business. Likewise, if you have a poor processing history, a low credit score, or have been previously put on the MATCH list by another payment processor, you will most likely face difficulty finding a payment processor because of the risk involved.

International Sales

Do you operate globally, or are most of your customers based in different parts of the world? Businesses operating internationally are classified as high-risk, as the economic dynamics can change unexpectedly in international countries, putting your business at stake. Frequent changes in currency value and changing customer demand can also significantly affect your revenues.

Legal Controversies

Some businesses are associated with legal controversies, such as age restrictions. If you deal in products that can be bought by only licensed professionals or people above a specific age, the payment processors will put you in the high-risk category. If you fail to meet the legal regulations, you will end up with a significant penalty. In the worst cases, the government might close your business because of the risk involved.

How High-Risk Merchant Accounts Work

How High-Risk Merchant Accounts Work

As mentioned earlier, most payment processors will state upfront that they do not work with high-risk merchants. Those who do accept merchants in this category implement strict regulations that eventually lead to merchant account termination or frozen funds.

The task of finding a reliable payment processor gets even more difficult when you have a bad processing history or your previous acquiring bank canceled your account because of compliance, legal, financial, and other issues. Some even put you on the MATCH list, an electronic record consisting of the list of the merchants operating in the high-risk industry. While there are processors offering competitive rates and flexible terms for high-risk merchants, they will want to evaluate your profile to ensure that they won’t get stuck with financial and legal issues later. This explains the hefty upfront reserve requirement and the strict regulations.

High-risk merchant accounts, as the name suggests, cater to high-risk businesses. Each payment processor has a specific criterion for selecting merchants based on their predetermined parameters. They post the list of the industries they work with, as well as other eligibility requirements, such as the minimal credit score or the chargeback ratio. If you meet their selection criteria, they will most likely set up your merchant account. Usually, payment processors that have partnered with popular banks and financial institutions and have a team to conduct thorough investigations are capable of bearing more risk and are thus willing to work with merchants across different high-risk industries.

As far as merchant operations are concerned, a high-risk merchant operates the same way as other merchants. They can link their eCommerce store with the payment gateway and get a virtual terminal to process over-the-phone payments and POS hardware for in-store transactions. All credit card payments made either in-store or online are verified by their payment processors and go through different stages, i.e., credit card networks and issuing banks, before they are processed. The payments are processed in batches and are deposited into the merchant’s account on the same day, the next day, or within a few business days, depending on how fast the bank processes your credit card transactions.

The only difference between a high and low-risk merchant account is the level of restrictions each merchant has to face. A high-risk merchant might have to sign up for an account that comes with a slightly higher processing fee than their low-risk counterparts. Plus, they are supposed to follow good processing practices to ensure their merchant account doesn’t get terminated because of financial or legal issues.

Pros and Cons of Getting a High-Risk Merchant Account

You might wonder if a high-risk merchant account comes with any perks. Contrary to popular belief, these merchants do not just experience the downsides of being labeled as high-risk. In fact, having a high-risk merchant account comes with many pros. Below, we’ve listed the pros and cons of such accounts.


Process High-Volume Transactions: Your payment processor might label you as high-risk because of your high processing volume. If they accept your merchant application, you will be approved for high-volume and large-sized transactions, making it easier to conduct multiple credit card transactions and accept high-ticket purchases without the fear of getting your account terminated. So, if you have a high processing volume, it’s best to get a high-risk merchant account to increase your credit card processing limit.

High Chargeback Threshold: Low-risk merchant account providers do not accept a high chargeback rate. If you receive multiple chargebacks, you will most likely have your account terminated. However, a high-risk merchant service provider understands that their merchants are at an increased risk of chargeback because of the nature of their business, types of transactions, and other factors. So, they will offer a higher chargeback threshold.

Personalized Solution: Most high-risk merchant service providers do not disclose their processing fees and other charges on their websites. That’s because they quote a customized price based on your industry type, risk level, processing volume, and other factors. You can even negotiate the processing fee with the processor. Unlike low-risk merchants, a merchant in the high-risk industry gets payment solutions and processing rates tailored to their business requirements.

Robust Security: Another major perk of working with a high-risk merchant is the access to advanced security. These merchant service providers implement robust security protocols, including end-to-end encryption, tokenization, MFA, secure payment gateways, and more, to ensure maximum security for the merchant and their customers. Since high-risk merchants are more likely to experience fraudulent transactions and security breaches, payment processors will implement advanced security tools to minimize this risk.


High Processing Fee: Since the payment provider bears an increased risk, they are likely to implement a higher processing fee for high-risk merchants. If a low-risk merchant pays 2.6% +10 cents per transaction, for instance, the same provider will charge 3.5% + 10 cents or more to high-risk merchants. So, it’s obvious that you will pay a little higher in processing fees if you carry the high-risk label.

Reserve Requirements: High-risk merchant accounts come with reserve requirements. It can be the upfront reserve, i.e., the amount you are supposed to deposit prior to getting your merchant account approved, or the rolling reserve, which is the percentage of your earnings deposited into a separate escrow account every month. Sometimes, the reserve requirements include 100% of the monthly transaction volume you are approved for. That means if a payment processor has approved your merchant account for credit card transactions of $20,000 per month, you need to keep $20,000 in the reserve account to set up your account.

Lengthy Approval Process: A low-risk merchant doesn’t have to submit as many documents as their high-risk counterparts. The latter involves a considerably higher level of risk, making them prone to chargeback, security issues, compliance issues, and legal matters. So, the processor will want to evaluate everything that shows your credibility before accepting your application. Besides, the approval time is quite long for such merchants. You can expect the processor to take 3-5 business days and longer to set up your high-risk merchant account.

Tips for Finding the Best High-Risk Merchant Account Provider

Despite your risk status, it’s possible to find a merchant service provider offering services to high-risk merchants. And you don’t have to give up on the perks, like low processing rates, advanced security, and minimal reserve requirements. We’ve listed a few tips for finding a reliable and secure payment processor for your high-risk business.

Visit their Website

You’ll find most of the information about the payment processor on their official website. This includes their processing rates, payment terms, contract details, restrictions, miscellaneous fees, and so on. As the competition is growing in the payment industry, you will easily find payment processors that are transparent about their pricing structure and have disclosed all details about processing on their websites. Even if they haven’t mentioned the pricing details, the least you can find is whether or not they work with high-risk merchants and the types of industries they serve.

However, don’t rely on their website alone. You should also consider other sources of information, such as Better Business Bureau (BBB) and Consumer Affairs, to find customer reviews about different processors.

Read the Conditions Carefully

Each processor has unique application criteria and eligibility requirements for high-risk merchants. The details are either mentioned on the website or sent to the applicant after they submit their application. These terms and conditions state the processing fee, contract length, early termination fee, chargeback threshold, industries excluded, hardware offered, chargeback fees, etc. If you have any queries, reach out to the processor’s support department for clarification.

Compare Different Processors

You can find two different payment processors offering the same terms and contracts but at different processing rates. It’s always better to compare these processors and choose the provider that offers the best rates with flexible contract terms. A few crucial things you must check when comparing payment processors are the processing rates, all kinds of fees, contract length, hardware offered, payment gateway, security features, and reserve requirements.



Is it possible to get instant approval for a high-risk merchant account?

It depends. In most cases, high-risk merchants do not get quick approval, as merchant service providers expect detailed documentation and proof of credibility before they set up their merchant accounts.

Which payment gateway should high-risk merchants use?

Usually, your payment processor will take care of the payment gateways. They integrate the gateway into your eCommerce website to facilitate secure payment processing for online transactions. Now, the type of gateways they support can vary from processor to processor. Most work with Authorize.net, NMI gateway, and USAePay. Some even have their proprietary gateways.

Which payment processor is the best for high-risk merchants?

PaymentCloud, Host Merchant Services, and Durango are a few high-risk merchant service providers that offer services to merchants in high-risk industries.