High-Risk Merchant Accounts for Subscription-Based Businesses

High-Risk Merchant Accounts for Subscription-Based Businesses
By alphacardprocess April 7, 2024

Subscription-based businesses have become increasingly popular in recent years, offering consumers convenient access to products and services on a recurring basis. However, these businesses often face unique challenges when it comes to payment processing. Due to the nature of their business models, subscription-based businesses are often classified as high-risk merchants by traditional financial institutions. This classification can make it difficult for these businesses to find suitable payment processing solutions and merchant accounts.

In this article, we will explore the various payment processing considerations for subscription-based models, including the importance of a reliable payment gateway, fraud prevention and risk management strategies, chargeback management and dispute resolution, and compliance with Payment Card Industry Data Security Standards (PCI DSS). We will also delve into the different subscription billing models and recurring payment solutions available to these businesses.

Additionally, we will discuss what defines a high-risk business, the industries considered high-risk for merchant accounts, and the benefits and challenges of high-risk merchant accounts. Furthermore, we will provide guidance on finding the right high-risk merchant account provider, including researching and comparing providers, evaluating fees and pricing structures, assessing customer support and technical integration, and understanding underwriting and approval processes.

Table of Contents

Payment Processing Considerations for Subscription-Based Models

Payment Processing for Subscription-Based Business

The Importance of a Reliable Payment Gateway

A reliable payment gateway is crucial for subscription-based businesses. It serves as the intermediary between the business and the customer’s payment information, securely transmitting and authorizing transactions. A robust payment gateway ensures that transactions are processed smoothly and efficiently, reducing the risk of payment failures or delays. It also provides essential features such as recurring billing, subscription management, and automated invoicing, which are essential for subscription-based businesses.

Fraud Prevention and Risk Management Strategies

Subscription-based businesses are particularly vulnerable to fraud due to the recurring nature of their transactions. Implementing effective fraud prevention and risk management strategies is essential to protect the business and its customers. This includes utilizing fraud detection tools, implementing strong authentication measures, monitoring transaction patterns, and conducting regular risk assessments. By proactively identifying and mitigating potential risks, businesses can minimize the financial and reputational damage caused by fraudulent activities.

Chargeback Management and Dispute Resolution

Chargebacks can be a significant concern for subscription-based businesses. A chargeback occurs when a customer disputes a transaction and requests a refund from their bank or credit card issuer. Excessive chargebacks can result in financial penalties, increased processing fees, and even the termination of a merchant account. Implementing effective chargeback management and dispute resolution processes is crucial to minimize the impact of chargebacks on the business. This includes promptly addressing customer concerns, providing clear refund policies, and maintaining accurate transaction records.

Compliance with Payment Card Industry Data Security Standards (PCI DSS)

Subscription-based businesses must comply with Payment Card Industry Data Security Standards (PCI DSS) to ensure the secure handling of customer payment information. PCI DSS is a set of security standards established by major credit card companies to protect cardholder data. Compliance with these standards helps businesses build trust with their customers and reduces the risk of data breaches and financial losses. It is essential for subscription-based businesses to work with payment processors and merchant account providers that are PCI DSS compliant.

Subscription Billing Models and Recurring Payment Solutions

Subscription Billing Models

Fixed Subscription Model

The fixed subscription model is the most common billing model used by subscription-based businesses. Customers pay a fixed amount at regular intervals, typically monthly or annually, to access a specific set of products or services. This model provides businesses with predictable revenue streams and allows customers to budget their expenses effectively. However, it may not be suitable for businesses that offer variable or usage-based services.

Usage-Based Subscription Model

The usage-based subscription model charges customers based on their actual usage of the products or services. This model is commonly used by businesses in industries such as telecommunications, utilities, and software-as-a-service (SaaS). It offers flexibility to customers, as they only pay for what they use. However, it can be challenging for businesses to accurately track and bill usage, requiring robust billing and metering systems.

Tiered Subscription Model

The tiered subscription model offers customers different levels of access or features based on their subscription tier. Each tier is associated with a different price point, allowing customers to choose the level of service that best suits their needs and budget. This model provides businesses with opportunities to upsell and cross-sell additional features or upgrades. However, it requires careful pricing and packaging strategies to ensure that each tier offers sufficient value to customers.

Freemium Model

The freemium model offers a basic version of the product or service for free, with the option to upgrade to a premium version for a fee. This model is commonly used by software companies and digital content providers. It allows businesses to attract a large user base with the free offering and monetize through premium upgrades or additional features. However, it requires a robust conversion strategy to encourage free users to upgrade to the paid version.

Recurring Payment Solutions and Automation Tools

To effectively manage recurring payments, subscription-based businesses can leverage recurring payment solutions and automation tools. These tools automate the billing and payment collection process, reducing administrative overhead and ensuring timely payments. They also provide features such as dunning management (automated payment retries), invoice generation, and customer communication. Popular recurring payment solutions include Stripe, Braintree, and PayPal.

What Defines a High-Risk Business?

A high-risk business is one that is deemed to have a higher probability of financial loss or legal issues for the payment processor or merchant account provider. Several factors contribute to the classification of a business as high-risk, including the industry it operates in, the potential for chargebacks and fraud, the business’s financial stability, and its compliance with industry regulations. High-risk businesses often face challenges in obtaining merchant accounts and may be subject to higher processing fees and stricter underwriting requirements.

Industries Considered High-Risk for Merchant Accounts

Certain industries are commonly considered high-risk for merchant accounts due to their higher likelihood of chargebacks, fraud, or legal issues. These industries include adult entertainment, online gambling, pharmaceuticals, travel and tourism, e-cigarettes, and subscription-based businesses. The classification of an industry as high-risk can vary among payment processors and merchant account providers, so it is essential for businesses to research and find providers that specialize in their specific industry.

Benefits and Challenges of High-Risk Merchant Accounts

High-risk merchant accounts offer several benefits for subscription-based businesses. They provide access to payment processing solutions tailored to the unique needs of high-risk industries, including recurring billing and fraud prevention tools. High-risk merchant accounts also offer businesses the opportunity to establish a processing history and build trust with financial institutions. However, there are also challenges associated with high-risk merchant accounts, including higher processing fees, stricter underwriting requirements, and potential limitations on processing volume or transaction types.

Finding the Right High-Risk Merchant Account Provider

High-Risk Merchant Account Provider

Researching and Comparing Providers

When searching for a high-risk merchant account provider, it is crucial to conduct thorough research and compare multiple providers. Look for providers with experience in serving subscription-based businesses and a track record of successfully managing high-risk accounts. Consider factors such as reputation, industry expertise, customer reviews, and the range of services offered. It is also advisable to seek recommendations from other businesses in the same industry.

Evaluating Fees and Pricing Structures

Fees and pricing structures can vary significantly among high-risk merchant account providers. It is essential to evaluate the fees associated with account setup, transaction processing, chargebacks, and other services. Consider whether the provider offers competitive rates and transparent pricing. Be cautious of providers that charge excessive fees or require long-term contracts with high termination fees.

Assessing Customer Support and Technical Integration

Customer support and technical integration capabilities are crucial considerations when choosing a high-risk merchant account provider. Ensure that the provider offers responsive customer support, preferably with 24/7 availability. Evaluate their technical integration options, including compatibility with your existing systems and the availability of developer resources or APIs for customization.

Understanding Underwriting and Approval Processes

High-risk merchant account providers typically have stricter underwriting and approval processes compared to traditional merchant account providers. Understand the provider’s underwriting criteria, including their risk assessment methods and documentation requirements. Be prepared to provide detailed information about your business, financial statements, processing history, and any risk mitigation strategies you have implemented. It is advisable to work with a provider that has a streamlined and efficient underwriting process to minimize delays.

Best Practices for Managing High-Risk Merchant Accounts

Regularly Monitor and Analyze Payment Data

Regularly monitoring and analyzing payment data is essential for managing high-risk merchant accounts. By reviewing transaction patterns, chargeback rates, and fraud indicators, businesses can identify potential issues and take proactive measures to mitigate risks. Analyzing payment data also provides valuable insights into customer behavior, allowing businesses to optimize pricing, packaging, and marketing strategies.

Implement Strong Customer Authentication (SCA) Measures

Strong customer authentication (SCA) measures are crucial for high-risk merchant accounts. SCA involves verifying the customer’s identity through multiple factors, such as something they know (password), something they have (mobile device), or something they are (biometric data). Implementing SCA measures reduces the risk of unauthorized transactions and enhances the security of customer payment information.

Maintain Transparent Communication with Customers

Maintaining transparent communication with customers is vital for managing high-risk merchant accounts. Clearly communicate your refund policies, billing cycles, and any changes to subscription terms or pricing. Promptly address customer concerns and inquiries to build trust and minimize the likelihood of chargebacks. Regularly update customers on any security measures or fraud prevention initiatives you have implemented to reassure them of their data’s safety.

Stay Updated on Industry Regulations and Compliance Requirements

High-risk industries are often subject to specific regulations and compliance requirements. It is essential for businesses to stay updated on these regulations and ensure compliance to avoid legal issues and financial penalties. Regularly review industry guidelines, participate in relevant training or certification programs, and work with legal and compliance experts to ensure adherence to applicable regulations.


Q.1: Can I get a high-risk merchant account for my subscription-based business?

Yes, it is possible to obtain a high-risk merchant account for a subscription-based business. However, it may require more effort and research to find a suitable provider that specializes in serving high-risk industries. Be prepared to provide detailed information about your business and industry to demonstrate your risk management strategies and financial stability.

Q.2: How does the underwriting process work for high-risk merchant accounts?

The underwriting process for high-risk merchant accounts typically involves a thorough evaluation of the business’s risk profile, financial stability, and compliance with industry regulations. The provider may request documentation such as financial statements, processing history, business licenses, and compliance certifications. The underwriting process can take longer compared to traditional merchant accounts, so it is advisable to start the process well in advance.

Q.3: What are the typical fees associated with high-risk merchant accounts?

The fees associated with high-risk merchant accounts can vary depending on the provider and the specific needs of the business. Common fees include account setup fees, transaction fees (percentage or flat rate), chargeback fees, and monthly or annual account maintenance fees. It is essential to carefully review the fee structure and compare it with other providers to ensure competitive pricing.

Q.4: How can I mitigate chargebacks and fraud for my subscription-based business?

Mitigating chargebacks and fraud requires a multi-layered approach. Implement fraud prevention tools and strategies such as address verification, card security codes, and IP geolocation. Monitor transaction patterns and implement real-time fraud detection systems. Maintain clear refund policies and promptly address customer concerns to minimize the likelihood of chargebacks. Regularly review and update your fraud prevention strategies to stay ahead of evolving fraud tactics.

Q.5: Are there any alternatives to high-risk merchant accounts for subscription-based businesses?

While high-risk merchant accounts are often the best option for subscription-based businesses in high-risk industries, there may be alternative payment processing solutions available. These alternatives include third-party payment processors, payment aggregators, or partnering with a business in a lower-risk industry that can process payments on your behalf. However, these alternatives may come with limitations or higher fees, so it is essential to carefully evaluate their suitability for your business.


In conclusion, subscription-based businesses, while offering a valuable and popular service model, face unique challenges in the realm of payment processing due to their classification as high-risk merchants. These challenges, including the need for reliable payment gateways, comprehensive fraud prevention, effective chargeback management, and strict compliance with PCI DSS, require thoughtful consideration and strategic planning. Understanding the nuances of different subscription billing models and leveraging appropriate recurring payment solutions are critical steps towards building a successful subscription service.