What is a High-Risk Merchant Account?

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

They’re considered risky because they pose more financial or reputational risk to the relevant acquiring bank/processor than what would be considered normal. This is often related to businesses that encounter a proportionally high number of chargebacks, have high ticket amounts, or transactions that have a use/delivery date well in the future. Within a given acquirers risk policy, they will have underwriting guidelines that contain a list of MCCs (Merchant Category Codes) that are deemed acceptable, restricted, or prohibited. These MCCs, in tandem with the billing model, determine whether a merchant requires a high-risk merchant account and the additional associated underwriting requirements.

For example, companies that sell using a promotional offer/trial that converts to a monthly subscription (negative-option), travel services, online dating services, or anything adult entertainment related are all examples of high-risk merchants.

Do I Need a High-Risk Merchant Account?

Graphic of a risk dial, the needles is pointing at the middle risk level. This is a representation of a high-risk merchant account.Basically, you’re at risk of requiring a high-risk merchant account if any of the following are true:

  1. Your bank is worried they’ll take a loss on your account because of your personal credit or your company’s financials. If they have to devote more resources to dealing with your issues than they’re going to make, that’s a problem.
  2. You have (or get) a high number of chargebacks. VISA and Mastercard have protocols that establish acceptable chargeback to transaction ratios. For VISA, this ratio is 0.90%, and for Mastercard, it is 1%. If you exceed these mandates, you will enter the respective monitoring program, and encounter steep fines, while also probably losing your merchant account. There are ways you can reduce and fight chargebacks, but the best way is to just avoid them in the first place by ensuring a smooth transaction process for your customer. (Corepay can certainly help you with this, especially with our CB-ALERT solution.)
  3. Your business is associated with a high number of chargebacks, like subscription services, especially if you offer free trials. Someone forgets to cancel their free subscription, gets charged for the first month (or year), and then initiates a dispute/ chargeback request for the membership.
  4. Your business or industry typically has a risky — or risqué — reputation, like gambling, adult entertainment, online dating, or CBD. (More on risky businesses in a minute.)
  5. You sell “future deliverable” products like travel reservations, hotel rooms, plane tickets, or even event tickets.
  6. Your product, service, or industry, has a long chargeback liability period. For example, if you sell annual memberships, your customers can issue a chargeback up to six months from the end of the service date. They pay for the service on January 1, 2021, and can still issue a chargeback until July 1, 2022.
  7. 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, usually due to excessive chargebacks or fraud, your next business is considered high-risk, as it is close to impossible to be removed from the MATCH list.
  8. You have a not-so-good past history with other merchant accounts in general. because you’ve been dropped, labeled high-risk, or generally had problems with your processor.
  9. You work from home or you’re in another country and sell tangible products. E-commerce businesses tend to be at risk of being high-risk, especially if you sell high-priced items like electronics or subscription services.
  10. You haven’t been in business for a long time. The longer you’re in business, the less risky you become, but that takes a while. You can’t be in business for a second year if you can’t make it through the first year though, which is why the high-risk label exists.

High-Risk Merchant Account Types Supported by Corepay

These are a few examples of a business that will probably require a high-risk merchant account, along with the associated MCC where relevant. This is not a complete list; your bank or payment services provider will let you know if you may require a high-risk merchant account.

  • Adult entertainment and products -MCC 5967
  • CBD – MCC dependent on billing model
  • Cryptocurrency – MCC 6051
  • Debt collection – MCC 6051
  • Ecommerce and other card not present (CNP) transactions (especially high-dollar products like electronics) – Many MCC’s, dependent on product and billing model
  • Fantasy sports – MCC 5816
  • Firearm dealers – MCC 5999
  • FOREX and currency trading – Usually MCC 6211
  • Gambling and gaming – MCC 7995
  • Health & beauty – Usually MCC 5968
  • Hotels & lodging – Large hotel groups have their own MCC
  • High-ticket items – Many MCC’s, dependent on product and billing model
  • Law firms – MCC 8111
  • Medical practices – Usually MCC 8011
  • Merchants with a Trial/Negative Option – MCC 5968
  • MLM and network marketing – Usually MCC 5968
  • Online dating – MCC 7273
  • Pharmaceuticals – MCC 5122
  • Nightclubs/Lounges, especially those that offer bottle service and high ticket amounts
  • Subscriptions, like monthly and annual memberships – Many MCC’s, dependent on product and billing model
  • Travel providers – MCC 4722
  • Vape merchants – MCC 5993

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 either refuse the merchant account application outright or drop an existing merchant because the 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 payment services processor to handle your high-risk merchant account is a little more difficult.

* Low-risk doesn’t mean these merchants aren’t risky, or they play it extra safe. It just means they’re not high-risk. Also, there is no such thing as just a “risk” merchant. You’re either high or low (ish).

It’s also a general rule of thumb: If one bank or processor deems you to be a high-risk merchant account, they’re probably 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 negative-option subscription service or online dating site a low-risk because they were having a good day.

How does having a high-risk merchant account affect you?

Being labeled high-risk doesn’t mean you can’t accept credit/debit cards for your business though. It usually just means you have to meet certain requirements or pay extra in terms of fees in order to keep your processors and banks happy.

You may be charged higher processing fees. In addition, you probably will have to keep extra money in a reserve account in case of chargebacks/financial loss for the processor. Some MCC’s also require annual high-risk registration fees being paid directly to VISA and Mastercard so the accounts can be monitored more closely.

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 potential future financial loss to the acquirer/processor. Specific terms for a given reserve are dependent on the individual merchant, but merchants can expect their reserve to last for the duration of their merchant account, plus a minimum of 180 days.

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 ecommerce electronics sites or electronics retail stores, especially if they offer “buy online, pick up in-store” (BOPIS) options — they’re prone to return fraud.

(Read “5 Steps to Protect Your Ecommerce Store from Fraud” for more information.)

Whether you need a high-risk merchant account, or are worried your low-risk merchant account might be recategorized as a high-risk merchant account, Corepay can help you. To learn more, please visit our website or call us at (866) 987-1969.

Photo credit: Mohamed_Hassan (Pixabay, Creative Commons 0)