High-Risk Merchant Accounts – The Complete Guide In 2021

The term high-risk merchant account refers to a merchant account or (MID) for businesses that accept credit cards but are considered risky by banks and credit card processors.

They’re also called high-risk businesses, but not necessarily because the business itself is risky. In a literal sense, it’s not like these are businesses that are engaged in rock climbing, skydiving, or bomb disposal.

Also, they likely don’t involve Tom Cruise dancing in his underwear to Bob Seger music.

Looking for a high-risk merchant account? Below is an infographic to make sure you’re getting the most out of your payment provider.

High-Risk Merchant Accounts Guide

A few examples of high-risk merchants include:

If you want to be in business these days, you need to accept a credit card; you can’t get around it.

There are no cash-only options, especially if you run an online or E-commerce business, or if you will be performing a lot of card not present or (CNP) transactions.

That means you have to accept the high-risk label, or just don’t be in business.

But that doesn’t mean it’s the end of the world, or that you can’t accept credit cards. Despite how it may sound, being labeled a high-risk business is not the kiss of death.

In this article, we’ll show you the difference between low-risk and high-risk merchant accounts, how high-risk merchant accounts work, how much they cost, how to get one, and some of the pros and cons of having them.

So, why are high-risk merchant accounts considered risky? High-risk merchant accounts are considered risky for the following reasons:

High-Risk Explained

Get Your Pre-Approved High-Risk Merchant Account

Corepay is dedicated to serving many different high-risk industries, with most of our clients coming from:

  • Adult Entertainment
  • Online Dating
  • E-commerce
  • CBD
  • Vaping
  • Medical
  • Cryptocurrency
  • Fantasy Sports

Corepay offers the following for its high-risk businesses:

  • Fast approvals within 24-72 hours
  • No application, set up fees, or annual fees
  • Mitigate risk with Order Insight by Verifi, 3-D Secure2.1
  • Traditional chargeback alerts
  • Low-risk rates, as low as $99 per month and $.05 per transaction
  • Maximize approval ratios based on your target customer base
  • High-risk rates as low as blended 2.95%

What Are High-Risk Merchant Accounts?

Your business may need a high-risk MID merchant account if any of the following are true:

  • Your bank thinks they’ll take a loss on your account due to your personal credit or your company’s financials. They don’t want to spend more time and money dealing with your account than they’re going to make.
  • You have gotten, or will get, a high number of chargebacks – You should try to avoid chargebacks, to begin with, but if you’re a low-risk merchant who suddenly gets a lot of chargebacks, you can get bumped to a high-risk account.
  • Your industry regularly has a high number of chargebacks. For example, subscription services, especially those with free trials, get a lot of chargebacks. When a free-trial user forgets to cancel their membership before the trial ends and gets charged for the first month, they’ll often issue a chargeback rather than admit they were negligent.
  • Your business or industry has a reputation of being risky and could damage the bank’s reputation. Things like gambling, adult entertainment, or CBD all make banks a little nervous about how their conservative customers will see them.
  • You sell “future deliverable” products. Hotel rooms, plane tickets, event tickets, and other reservation-based items.
  • Your product or service has a long chargeback liability period. For example, if you sell annual memberships, your customers can issue a chargeback up to six months after the end of the service date. You may charge them on January 1, 2021, for an annual membership, but they have until July 1, 2022, to issue the chargeback.
  • You have a poor past history with other merchant accounts in general. because you’ve been dropped, labeled high-risk, or generally had problems with your processor.
  • You work from home. Ecommerce businesses tend to be at risk of being high-risk, especially if you sell high-priced items like electronics or subscription services.
  • You’re in another country other than the U.S., Canada, Australia, European Union, Japan, Singapore, or South Korea.
  • You have been on the Terminated Merchant File (TMF) or Mastercard Alert to Control High-risk Merchants (MATCH) list. If you previously owned a business that made one of these lists, your next business is considered high-risk.
  • You’ve only been in business for a short time. The longer you’re in business, the less risky you become, but that takes a while to get there. You might be able to apply for low-risk merchant status, but if you run your business right, you might not even want to.

Can A High-Risk Merchant Still Accept Credit Cards?

Yes, you can still process credit card and debit card payments. But it can be a lot harder for some businesses to find a bank or credit card processor to help them.

Too often, a bank or processor will drop a merchant because that merchant reached a certain number of chargebacks or the bank changed what kinds of businesses they will continue to work with.

Most processors will only do business with low-risk* merchants because they’re safer and less likely to use up resources or cause issues.

That means finding a payments services provider to handle your high-risk merchant account is a little more difficult.

Note: Low-risk doesn’t mean these merchants aren’t risky, or they play it extra safe. It just means they’re not high-risk.

It’s also a general rule of thumb: If one bank or processor deems you to be a high-risk merchant account, they’re likely all going to reach the same conclusion.

If you were on the bubble because of your finances or the age of your business, you might find one who’s willing to give you a break.

But, for example, no bank or processor is going to label a subscription service or online gambling site a low-risk because they were having a good day.

How Does Having A High-Risk Merchant Account Affect You?

Wondering if you’re considered high-risk? You can apply for a high-risk merchant account here.

Being labeled high-risk doesn’t mean you can’t accept payments. It just means you have to meet certain requirements, and or pay extra in terms of fees in order to keep the processors and banks happy.

You may pay a higher percentage in processing fees. (Be sure to factor this into your ROI.) Or you may have to keep extra money in a reserve account in case of chargebacks.

A reserve account is a sub-account attached to your own merchant account where a portion of your credit card sales are kept in order to cover any chargebacks and credit card disputes you might be hit with.

Furthermore, it is essentially the last line of defense for a bank in case a merchant racks up many chargebacks, does not maintain a bank account in good standing, and is unable to cover processing fees/chargeback liability.

If funds are pulled from the reserve, you can probably expect to be permanently placed on the Termchant Merchant File (TMF).

However, you can reduce the pain of, and need for, chargebacks if you not only have a solution in place to help you reduce chargebacks but that you fight the chargebacks that actually do come your way.

You may also be subject to account freezes, especially if there’s a lot of suspicious activity on your merchant account.

For example, some industries are more prone to identity thieves using credit cards to make purchases, like e-commerce electronics sites or electronics retail stores, especially if they offer “buy online, pick up in-store” (BOPIS) options — they’re prone to return fraud.

High-Risk VS Low-Risk

Below you will find the differences between low-risk merchants and high-risk merchants.

High-Risk VS Low-Risk Merchant Accounts

Pros Of Going High-Risk

While it may cost more to have a high-risk merchant account, there are some serious perks as well:

  • Companies that have financial difficulties or bad credit can still process credit cards and accept payments, which can help them recover and get back to being profitable.
  • Low-risk merchant processors won’t touch certain kinds of businesses at all.
  • There’s increased protection from fraud and chargebacks. Since high-risk businesses are labeled as such because of the risk of chargebacks, their payment processor and issuing bank take extra precautions to protect themselves against chargebacks.
  • When hit with a lot of chargebacks, you’re less likely to lose your merchant account over it. (Still, try and avoid a lot of chargebacks.)
  • You can earn more money because high-risk accounts may mean you are in an industry that involves high-profit margins.
  • A reserve account will protect you against surprise chargebacks. It may be a pain to have one, especially if you have to wait for as long as 180 days after account closure before you get your money, but at least the funds are there as the last line of defense, and the bank understands this.
  • You have global coverage, which means you can sell your products and services almost anywhere in the world. High-risk payments service providers are used to a global outlook on payments and have the technology in place to help you grow.

Cons Of High-Risk Merchant Accounts

  • You’ll pay more for merchant fees and services. You can expect to pay fees that are higher than traditional processing fees.
  • You have a rolling reserve account which can be as much as a cap of 50% of the approved monthly volume. Depending on your issuing bank and your payment processor, your rolling reserve can be held up to 180 days post merchant account closure.
  • For some merchants, a reserve is utilized, which will start after the purchase cycle closes. For an annual subscription, that means the day the subscription ends. So you could be looking at a 16-month rolling reserve for some purchases.

Are Conversions Affected From Having High-Risk Merchant Accounts?

Conversions (approval ratios) on high-risk merchant accounts can be negatively affected if you do not work with a payments service provider who understands your business.

This is because high-risk merchant category codes can automatically be flagged as high risk by certain issuing banks and thus automatically declined.

Therefore, merchants must utilize cutting edge technology and anti-fraud tools, such as 3DSecure 2.1, tokenization, and BIN checkers to ensure that legitimate transactions are processed without issue.

If your business is treated as a standard low-risk business, your conversions will undoubtedly suffer and you will struggle to grow over time.

High-risk payments service providers and acquirers are also more likely to accept more international transactions, despite the increased chargeback liability because they understand the business.

Rather than have your transaction automatically blocked by a low-risk acquirer, if processed correctly, these transactions will be approved and increase overall conversions.

Do Paypal Stripe And Square Deal With High-Risk Businesses?

No, they do not. If Paypal determines at any point that your account is high-risk, such as CBD or Online Dating they can choose to terminate your account.

It may be easy to get one of these accounts up and running, but they also usually end quickly, with funds held for at least 180 days post account closure.

Corepay specifically works with high-risk businesses and understands the risks associated with these industry types.

High-Risk Merchant Fees

While rates vary from one provider to the next, it is important to note that high-risk merchant accounts are often significantly more expensive than low-risk merchant accounts.

Generally speaking, should you be deemed high-risk, you will typically pay more than those who are low-risk for similar services.

At Corepay, we understand this and truly aim to do our part when it comes to costs; such as waiving setup fees/application fees, and early termination fees.

Below are the merchant accounts fees you can expect to see when applying for a high-risk account:

Setup Fees

Regardless of whether you’re a high-risk or low-risk merchant, you may have to pay to set up your merchant account.

But high-risk merchants need to pay more than regular merchants. Corepay does not charge application or setup fees.

Early Termination Fee

You pay this fee when you’re setting up your account, but it’s the payment made if you end your contract early. It’s sort of like a cell phone termination fee, but you pay it up front.

This fee can be waived by your processor. You shouldn’t be extorted into loyalty; a good processor will earn it.

Discount Rates

This is typically done as a flat rate/blended merchant discount rate (MDR) or as a pass-through mechanism referred to as Interchange Plus (ICC+) pricing.

The former model, MDR is the easiest pricing method to forecast expected processing costs as a simple percentage of turnover.

However, some “less honest” processors hide costs, or pad interchange fees, making it difficult to determine what you are paying for.

On the other hand, the Interchange Plus pricing model, is a truly transparent pricing model, which shows just how much the processor is making off you as profit.

This assumes that the majority of the processor’s costs are related to interchange (card scheme hard fees to banks/processors) and then adds value to create profitability.

Longer Contracts

This is typically a point of negotiation, however, it’s not uncommon for providers to require at minimum, 3 years of service.

Authorization Fees

When you attempt to process a transaction, there is an authorization (auth) fee to first confirm the validity of the transaction.

If the cardholder information is valid, and the issuer allows the transaction to process, the transaction then enters the “settlement” phase.

If the transaction fails due to any number of reasons (maximize your conversions), this fee is still charged, even as a declined transaction.

Again, the key for merchants is in understanding the many different interchange rates and how to reduce their processing costs as much as possible for their industry type.

Settlement Transaction Fees

This is charged for approved transactions, in addition to the previously discussed transaction fee. Some banks may not impose a separate authorization and settlement fee, instead bundling them.

However, it is often advantageous for high risk merchants to separate the costs and not pay exorbitant processing fees for declined transactions.

Chargeback Fees

You get hit with chargeback fees (and refunds) when you get hit with chargebacks. And you get charged with them as soon as a dispute chargeback is filed.

You still get to defend yourself and prove that you’re in the right, to recover the lost revenue but you’re  you’re still stuck with the chargeback fee that will not be reimbursed to you.

So it’s best to prevent the dispute from happening in the first place, and if it does arise, fight your chargebacks and recover your lost revenue

Non-compliance/Penalty Fees

These are the fees assessed if you violate your payment processing contract.

For example, if you don’t follow PCI compliance standards or use an EMV compliant processing machine you could be hit with non-compliance fees for failing to follow the payment processor’s contract.

This could even get you blacklisted by your processor, which makes it harder to get an account with another processor.

How Do Chargebacks Work With High-Risk Merchant Accounts?

High-Risk Merchants & Credit Cards

Chargebacks tend to happen for one of four reasons:

  • Technical Issues:  Non-sufficient funds, expired authorization
  • Quality Issues: Something was wrong with the product or service, or the customer didn’t receive it.
  • Clerical Issues: Duplicate billing, incorrect billing, or a refund was never issued
  • Fraud Issues: The customer did not authorize the purchase, or they were the victim of identity theft. Also called “malicious fraud.” The customer committed friendly fraud, and lied about quality issues or clerical issues. Says they didn’t receive a shipment or it was damaged.

When a chargeback happens, the customer calls the bank, gives a reason for wanting a refund, and the bank issues the refund.

The bank then contacts the merchant and gives them a very small window of opportunity to respond to the claim.

The merchant can either give a refund immediately or if they believe the chargeback was made in error or as a result of fraud, they can dispute the chargeback and show the bank that the purchase was correctly made and properly fulfilled.

Both Visa and MasterCard now have programs that help merchants fight friendly fraud and unknown errors.

A customer can call their bank, and order Insight by Verifi (a Visa company), or Mastercard’s Ethoca will provide transaction information in real-time.

The customer service representative can confirm a purchase, which may remind the customer that they did in fact buy the item in question.

Or they can require that the customer contact the merchant directly, which helps certain businesses, like restaurants that made a quality error on the delivery order.

Are High- Risk Platforms Secure?

Generally speaking, high-risk platforms are very secure. At Corepay, we have a PCI-Level 1 secure payment gateway that is monitored around the clock and regularly tested for security issues.

Our gateway also supports full payment tokenization, including for recurring billing so that cardholder data is not only always encrypted with maximum security, but also flexible for our merchants.

How Do I Apply A High-Risk Merchant Account?

Before applying for a high-risk merchant account, there are a few things you need to have in hand:

  • Certificate of incorporation
  • A voided check, or other proof of bank accounts such as a signed bank letter or barring that, your bank’s routing number and your bank account number
  • Personal and business financial history
  • Organizational chart
  • Any licensing numbers and the name of the organization that granted the license
  • Six months of processing statements, if applicable
  • A compliant website, (stipulating terms and conditions, including refund policy)

You may need more information depending on your industry and any requirements of your state or country’s government.

Once you’re ready, you can apply for your high-risk merchant account with Corepay.

What Is A High-Risk Refuse?

A high-risk refusal is an error code produced by a customer’s issuing bank related to a declined transaction.

This is due to the relevant issuing bank declining to process the transaction because the transaction is classified as too risky. A reason for this could be because of the merchant operating in a high-risk industry.

For a merchant, this is one of many potential decline codes that are produced by the payment gateway and something that should be actively monitored to ensure that approval ratios are as high as possible.

What To Consider With High-Risk Merchant Accounts

With the abundance of high-risk credit card processors on the market, it is important to always conduct thorough research. While coming to a final decision, here are the main things to keep in mind.

  • Support: Responsive support is key in the high-risk industry. When something goes wrong, it is essential to know you can rely on your partner.
  • Pricing: Prices will vary from one provider to the next. Make sure there is transparency and that you don’t get hit with hidden fees.
  • Expertise: When talking with a payment company always ask them how long they have been in business.
  • Security: Having a payment partner who can ensure strict security rules is essential. Corepay specializes in ensuring our client’s maximum security.

Should you have any questions about high-risk accounts, you can direct them to us here and our staff at Corepay will get back to you in a timely manner.

Do You Need Technical Skills For Integration?

No technical skills will be needed for integration. While this can seem like a daunting task, we assure you, it is not.

The integration with Corepay is seamless and done via API, and can easily be achieved the same day.

All of our offerings are achieved through a single connection and our development team is here to assist every step of the way.

Can WordPress Websites Use High-Risk?

Yes, WordPress websites have become very secure over the years. Since WordPress sites are easier to set up for E-commerce, there has been a boom in WordPress sites that has resulted in far better security for WordPress sites.

Further to this, merchants have the option of utilizing our hosted payment page from our gateway, which then passes the burden of cardholder security to us, which is our specialty.

What Countries Are Best For High-Risk Accounts?

Anywhere that you can accept credit cards is a place where you can get a high-risk merchant account.

Certain countries have sanctions that prevent merchants from accepting cardholders from certain countries, such as the OFAC list in the USA.

However, if the merchant is established in a region and legally operating, there is nothing to prevent them from accepting payments as a high-risk merchant.

The skill is in working with an experienced payments service provider that understands your business, and the card scheme physical presence requirements to ensure that you not only get up and running but continue to accept payments for the years to come.

At Corepay, we specialize in servicing truly globally-focused merchants.

Sales Methods

Certain marketing tendencies are more aggressive and therefore carry companies have a greater likelihood of chargebacks. than other standard businesses. The following sales methods are considered high-risk:

Take affiliate marketing for example. The concept of this marketing platform is that companies will give commissions to affiliates who recommend their products.

Since affiliates earn commissions, this leads to some aggressive marketing that doesn’t always result in consumers being happy with their purchases, resulting in a chargeback.

Corepay Is Here For You

Finally, Corepay can help businesses get approved where other businesses simply cannot.

With ownership having over two decades of experience, we believe we have the right service and knowledge for those involved in the high-risk industry.

Once you are approved, we are dedicated to keeping you approved and compliant in the high-risk industry.

Contact Corepay today to learn how we can optimize your payment structure.