Introduction to High-Risk Merchant Accounts
A high-risk merchant account is a special payment processing account. It is for businesses in high-risk industries. These industries often face more chargebacks, fraud, and regulations. Many traditional sponsor banks avoid working with them. High-risk merchant accounts help these businesses accept credit card payments. They implement extra measures like rolling reserves, higher fees, and strict fraud protection.
It is important to understand that high-risk credit card processors are also required to follow underwriting policies. They have to ensure that the merchants are vetted properly before approving the account. Merchants should be aware of various details that can help them get approval for such accounts. This guide was created by the high-risk processing experts at QuadraPay for this purpose. We are confident that after reading this guide, you will have answers to all your questions related to high-risk merchant accounts. Let’s begin.
Historical Events Related to High-Risk Credit Card Processing.
Before we explore high-risk merchant accounts from today’s perspective, it is important to look back in history. How the card processing industry started? How it identified different kinds of risk, and what significant measures were taken?
1950s-1980s: The Early Days of Credit Card Processing
Most credit card transactions took place manually between the 1950s and 1980s. There was hardly any automation in place. They were developing fraud detection systems. Payment technology advancements were beginning to take place. During this period, the rise of mail-order catalog businesses led to an increase in “card-not-present” fraud. The popularity of credit card processing led to an increased risk of fraud and billing errors.
In response to these occurrences, the Fair Credit Billing Act (FCBA) came into effect in 1974. It provides consumers with protections against billing errors, including unauthorized charges. The FCBA allowed consumers to dispute errors on their credit card statements within 60 days. It became mandatory for creditors to resolve disputes in a set timeframe. This act is a milestone in relation to consumer protection and fraud prevention.
1990s-2000s: The Dot-Com Era and E-Commerce Boom
The dot-com boom of the 1990s and 2000s introduced new challenges. The industry saw a high growth in e-commerce, but it led to an increase in online fraud. During this time, payment processors started categorizing merchants based on risk profiles. The Gramm-Leach-Bliley Act (GLBA), passed in 1999, played a crucial role in improving data privacy and security. It recommended financial institutions establish strict privacy policies. GLBA focused on protecting consumer data and reducing the risk of data breaches. It was an important move as online transactions became more prevalent.
2008 Recession and Its Aftermath
The 2008 recession had a big impact on global economies, including the payment processing industry. Travel and debt collection industries were already considered high-risk. The financial crisis increased the uncertainty in these sectors. Banks responded by tightening underwriting standards and introducing new regulations. The Dodd-Frank Act of 2010 aimed to increase transparency and reduce systemic risk within the financial system. It contributed to more cautious underwriting and a stricter regulatory environment for payment processors.
2010s: Tech-Driven Risk and Emerging Industries
As we moved into the 2010s, the payment industry faced new technological challenges, with emerging sectors like CBD, cryptocurrencies, and subscription-based services presenting unique fraud risks. In response to these challenges, regulatory reforms such as PCI DSS, PSD2, and Strong Customer Authentication (SCA) were introduced. The objective of these reforms is to improve security for both consumers and merchants. While PCI DSS compliance had been established earlier, it became even more critical in the 2010s as payment processors adapted to new technologies and fraud patterns.
COVID-19 and its impact on payment processing.
The COVID-19 pandemic shook the e-commerce businesses. Industries like travel, airlines, and cruise lines faced a surge in chargebacks due to cancellations and delays. As a result, payment processors became more cautious when working with merchants offering delayed delivery products and services. They further refined their approach toward high-risk industries.
The role of high-risk merchant accounts today
Credit card processing has changed over time because of big events in history that happened in response to rising fraud risks and changes in the global economy. We passed consumer protection laws like the Fair Credit Billing Act. Now, we live in the digital age of e-commerce. Each stage brought new problems related to managing fraud and risk. Important legislation like the Gramm-Leach-Bliley Act, the Dodd-Frank Act, and more recent changes like PCI DSS and PSD2 have helped make the payments industry safer and more regulated. The COVID-19 pandemic and the recession of 2008 made it even more clear that high-risk merchant accounts are needed to help industries that need custom solutions.
Today, high-risk merchant accounts are important for many types of businesses. They allow global operations in areas like telehealth, e-commerce, and money transfers. The previous fraud instances have helped processors implement measures to provide a safer processing environment.
Now we have a better understanding of the history of credit card processing risk mitigation. Let’s now talk about what makes a business high-risk. In the next section, we will explore that.
Characteristics of High-Risk Businesses
Various factors combine to classify businesses as high risk. These include financial situations, operational mode, industry reputation, previous account history, and regulatory limitations. Other factors include the possibility of fraud and disputes. All these together make a merchant high risk. Let us explore these factors in detail.
Breakdown of risk factors related to High Risk Businesses.
Financial Risk Indicators: The most important factor is credit risk. Any business that can attract over 1% chargebacks can bring in huge credit risk for the processors. Every merchant processor wants to keep the overall chargeback rate under 1%, which means no more than one dispute per 100 transactions. Industries like travel, gambling, and online dating can attract high chargebacks. Excessive disputes can be a big problem for payment processors. This may even lead to the termination of the merchant account. The credit risk also increases with high-value transactions. Any transaction above $100 is generally considered high risk. High-ticket merchants have a lower number of transactions, which can result in high chargebacks. Another factor is a bad credit score, especially if it is below 600.
Operational Risk Drivers: The way a business operates can also lead to its classification as high-risk. Many businesses, including streaming services, credit repair, weight loss programs, and software-as-a-service (SaaS), rely heavily on subscription payments. The problem with recurring payments is that they often attract friendly fraud disputes where customers forget about the charges and demand money back. Industries such as CBD, crypto, and firearms are also high-risk. Some industries, like adult entertainment, are considered high risk due to reputational reasons. Many businesses depend on international and multicurrency transactions. This can introduce currency volatility and geopolitical risks. These international sales-related factors further contribute to a merchant’s high-risk classification.
External Risk Factors: Some industries, like pharmaceuticals and financial services, face ever-changing regulations such as FDA and AML-related laws. It becomes complex and financially risky for payment processors to support such industries. Onboarding a merchant from a highly regulated industry can be an expensive process as well. These are a few key reasons why mainstream processors may avoid working with such businesses.
Psychological and Operational Stigma of being labeled “high-risk
Although high-risk merchant accounts are completely legal if vetted properly and procured from the right source, there is still a psychological stigma surrounding them. Generally, the public, whenever they hear the term high-risk merchant account, thinks that the merchant or the processors may be doing something wrong. This is also a reason why low-risk acquiring banks stay away, as it can negatively impact their brand reputation.
For high-risk merchants, getting a credit card processing account is not only difficult, but they may also struggle to obtain other financial products as well, such as bank accounts and funding. For example Most crypto startups face problems in opening accounts with traditional banks.
Not having access to the right merchant service products can create hurdles for any business. Regular low-cost payment processors generally deny approval to high-risk merchants. These merchants can only work with specialized credit card processors. While a low-risk merchant generally pays 1.5% to 3% in transaction fees, high-risk merchants usually pay between 2% and 5%. Merchants from select high-risk industries are also required to pay an annual high-risk registration fee, which cannot be avoided.
High-risk businesses can still grow and survive by getting a stable high-risk merchant account in spite of these obstacles. Now that we understand the characteristics of a high-risk business, let us explore in detail some industries that fall under this category.
Common High-Risk Industries(Expanded industry analysis with statistics)
Merchants from a huge range of industries face problems when it comes to account approval. Many factors, such as the possibility of fraudulent transactions, regulations, and a high rate of chargebacks, are to blame for this. We will explore such industries in this section. We have separated these industries into two categories. For ease of understanding, we have divided these industries into two categories: established high-risk industries and emerging high-risk industries.
Established High-Risk Industries
Gambling, casinos, poker, betting, and similar merchants are perfect examples of established high-risk e-commerce merchants. They have been operating for years, and the industry knows their risk. However, if these accounts are not properly managed, they can easily reach chargeback rates of 2.5% to 3.5%, which is well above the industry threshold of 1%.
Risk factors such as impulsive disputes, jurisdictional bans, and underage gambling contribute to the classification of such industries as high risk. The global online gambling market is worth multiple billions, yet a huge percentage of gambling and betting operators find it extremely difficult to get and retain merchant accounts due to high chargebacks.
E-commerce is the foundation of modern online retail. On e-commerce websites, you can find people selling all kinds of products, including electronics, luxury goods, and groceries. The fact is that e-commerce is also a high-risk industry. If not managed properly, these accounts may see chargebacks ranging from 1.2% to 2.5%, especially in categories like luxury items. Friendly fraud is a common problem for e-commerce merchants. Many customers exploit return policies and dispute genuine transactions. Every year, e-commerce merchants across the globe suffer losses worth billions of dollars due to return abuse.
The COVID-19 pandemic had a significant effect on the travel and hospitality industries. Chargebacks increased by up to 200% for many airlines. Because of cancellations, billing errors, and geopolitical unrest, these accounts can easily reach the chargeback rate of 3% to 4%. Seasonal demands cause irregular cash flow, and disagreements from reservation platforms increase the risk even more.
The stigma surrounding the adult entertainment industry persists. The key problems with this industry are reputation, high chargebacks, recurring billing issues, fake transactions, and privacy concerns. Additional challenges include age verification failures, banking restrictions, and operational hurdles. We want to emphasize that the adult industry extends beyond video streaming and chat lines. It also includes sub-sectors like novelty stores, toys, and adult e-commerce. These businesses also struggle to get merchant accounts due to reputation risk.
Emerging High-Risk Industries
In this age of innovation, many sectors are emerging that have immense growth potential. These industries may currently be visible in limited geographies, but they have a promising future. Many payment processors may still be in the process of being cautious of merchants from such industries because of a lack of experience.
As per Fortune business insight research paper by the year 2028 the CBD and hemp products market size will reach USD 79.74 billions. Unfortunately, this industry faces challenges in merchant processing. Processors often associate CBD and hemp with cannabis, which leads to frequent declines. Sometimes these accounts are suddenly paused or shut down because of changing regulations.
Merchants selling AI software and Ai saas are also considered high risk. These businesses collect payments through subscriptions. Products offered include services like AI chatbots, AI agents, and AI-based content creation tools. Since this industry is relatively new, many AI applications may fail to deliver results as expected, which may lead to excessive chargebacks. Another major concern is deepfake fraud, which increases various types of risks for payment processors.
Telehealth and digital wellness are the next big trends, and many entrepreneurs are launching projects in this industry. However, these merchants face difficulties in securing merchant accounts due to complex insurance billing, strict data privacy laws, and the possibility of violating medical-related laws.
Advantages and Disadvantage of High-Risk Merchant Accounts
SWOT analysis framework (Strengths, Weaknesses, Opportunities, Threats)
For merchants that struggle to get a payment gateway, a high-risk processor is nothing less than a boon. However, these accounts do come with some disadvantages. We will now explore the advantages and disadvantages in detail through a simple SWOT analysis.
Strengths: For the merchant, the biggest advantage is the ability to accept digital payment from customers. Low-risk processors say no to such merchants. This can destroy the future of many promising entrepreneurs. However, many such businesses can get the ability to accept credit card payments with high-risk processors. This allows these companies to compete effectively in the market with other businesses.
For example, regular payment processors generally reject cryptocurrency platforms. However, when these platforms approach high-risk payment processors, they are often able to get a crypto exchange merchant account. These accounts allow merchants to process high-volume transactions, offer subscription billing options, and accept international payments.
Certain industries, such as telemedicine and e-commerce, greatly benefit from these features. To reduce fraud, high-risk payment processors use advanced fraud prevention tools and chargeback alert systems. The goal of these tools is to protect the merchant’s revenue stream and keep the account stable for a long time.
Weaknesses: Let’s now examine a few possible issues related to high-risk merchant accounts. The price is the main drawback. We will be upfront and honest about this. Transaction fees are typically higher for these accounts when compared to low-risk merchants. A high-risk PSP generally charges a transaction fee between 1.5% and 5%.
Additionally, sometimes a setup fee is required. There is an annual high-risk merchant registration fee for certain merchant categories. This is applicable for each card brand. So this is a huge burden on merchants. However, it also helps keep fraudulent actors away and only serious merchants active in the industry.
Generally, processors ask merchants to agree to a fixed or rolling reserve. This is a risk reduction strategy for processors. The process can use the reserve funds to initiate refunds in the event of a merchant receiving chargebacks.
Another weakness is slow settlement. Merchants receive settlement each week. Some processors may also keep 1 week’s transaction amount on hold. However, it is important to discuss how merchants can negotiate better terms with the processors in relation to rolling reserves and settlement times.
Opportunities: Let’s now explore the opportunities associated with high-risk merchant accounts.
First, your business can grow into a profitable company by taking payments from clients all over the world if you have a trustworthy merchant account.
For example, estimates suggest that by 2027, the global gambling market will be worth $127 billion. If you are a gambling merchant, then you can position yourself well in this huge industry and make money.
Selling innovative products and services is an additional opportunity. Software development, AI tools, new marketplaces, and NFT businesses are high-risk for regular processing companies. Only high-risk processors generally explore such accounts.
Threats: Let’s now examine a few threats related to high-risk merchant accounts.
Regulations apply to a variety of high-risk industries. Some of these are escort services, strip clubs, casinos, sports betting, online poker, lottery sites, vape, tobacco, cigar, gun retailers, ammunition sales, tactical gear, and Forex brokers.
The laws and regulations related to such industries can change at any time. For instance, Australia recently banned vaping products. This seriously disrupted the business of thousands of vaping merchants in Australia.
Online fraud is a serious threat as well. Your payment service provider may suspend or close your high-risk merchant account if it receives a lot of fraudulent transactions.
Long-term Financial Implications of High Risk Processing
Although high-risk merchant accounts have higher fees than those of ordinary merchant accounts, they can give a favorable return on investment (ROI). For instance, a CBD business can easily make between 20% and 40% profit on its products by paying a 4% fee. It is clear from long-term calculations that these accounts are profitable for merchants.
Merchants can negotiate with the payment processor for better rates. For this, it is important that the merchant follow processors rules and keep its chargeback ratio low. Sometimes processors may lower or remove the reserve requirements and even reduce the transaction fee.
For example, a travel agency may ask for a reduction in fees and reserve if it is successful in maintaining its chargeback ratio under 0.5%. As a result, the travel agency can save money that they can use to grow their business.
Reputational Trade-offs and Mitigation Strategies
The term “high risk” is often misinterpreted. Many people believe that high-risk merchants engage in unethical or unlawful practices. This is not right. High-risk merchant accounts are necessary for businesses in many respectable industries.
However, this misconception can occasionally deter investors and even consumers from doing business with high-risk companies.
Companies should maintain open and transparent communication with their customers. They must put in place security measures to reduce risk. Collaborating with respectable companies can enhance a high-risk merchant’s credibility and reputation.
Selling products made by reputable companies should be your top priority. This strategy not only increases sales but also enhances the reputation of your business. Customers that are happy will come back. The company will expand and, as a result, make more money.
To preserve credibility and trust, businesses must abide by laws, such as the GDPR for EU consumers. Above all, merchants need to make sure that they always adhere to the merchant processor’s terms and conditions.
A high-risk merchant account has benefits and drawbacks. Strategic decision-making, specialized tools, and successful negotiation with payment processors can make it a profitable solution.
The next section will cover the requirements for the high-risk payment gateway. We will also go over the steps you can take to boost your approval chances.
Qualifying for High-Risk Merchant Services
To secure a yes from a reputable high-risk merchant account provider, it’s crucial to prepare ahead of time. Let us go through the entire process from application to KYC to approval to integration.
Step-by-Step High-Risk Credit Card Processing Approval Process Timeline.
The approval process for a high-risk merchant account can take anywhere from two to three weeks. Payment processors conduct thorough due diligence before approving any merchant account.
Getting Prepared: It may take a few days for you to be prepared for the application. During this period, you should evaluate your business internally. This includes assessing your risk profile, chargeback history, and industry classification to determine whether banks may consider your business as high-risk. If your industry is not classified as high-risk, you may be able to work with a low-risk payment provider. However, if your business falls into the high-risk category, you must present yourself as a credible and well-managed company to potential processors. To get favourable rates and terms, it is important to find multiple high-risk payment processors and compare their quotes before committing to any provider. Most providers will be ok to send tentative rates before full evaluation.
Document Submission: On average, merchants spend 2-3 days submitting all required documents. This timeframe can vary based on the industry and merchant’s risk profile. Underwriters may request additional documents, and it may delay the process.
Underwriting Review During this time, underwriters evaluate your processing history, business structure, and compliance documents. This is done to assess the overall risk associated with your profile. Underwriters will decide whether a reserve is required for your merchant. What terms on the regular contract should be modified or added? Should there be an early termination fee? Evaluating merchants from most high-risk industries takes time. The most time-consuming applications are from merchants operating in industries like cryptocurrency exchanges, insurance companies, money transfer, alcohol, bars, online dating, and the adult industry. Underwriters carefully review every aspect before approving the account. Underwriting team generally takes 4-8 days.
Approval & Integration: Once underwriters approve your account, the payment processing company will send you a contract. You must review it fully and then sign it. Remember, before signing, you may request the merchant processor to modify terms if you wish. After signing, you receive login credentials for the gateway. The integration team will share API information and links to ready-to-use plugins. If you face any technical issues, you can always contact the processor for assistance. In most cases you will have your merchant account activates within 2-3 weeks.
KYC Documents for High-Risk Credit Card Processing
Business licenses and registrations: The first document is your business license document. You can provide your company’s Certificate of Incorporation or any similar business registration proof. If your business operates in a regulated industry that requires special licensing, then you will have to share the active license copy.
Processing History: Another important document is your credit card processing history. Most high-risk acquirers prefer to work with merchants who already have at least three to six months of processing experience. The credit card processing statements should display chargeback ratios, refund percentages, and transaction volumes.
Bank Statements: Submitting your bank statements is mandatory. You may also provide your balance sheet and tax returns. Bank statements are reviewed to determine your financial strength. If your statements show little to no balance, it may discourage underwriters from approving your account.
Photo IDs of Directors: For high-risk merchant accounts, identifying the business owners is essential. You must provide a national ID, which should include a photo, full name, and date of birth. In most cases, a copy of a driver’s license or passport is sufficient.
Utility bills for the company and its directors: Underwriters need to verify where the company operates from and where the directors reside. For this, you should submit recent utility bills. Any utility bill, such as gas, electricity, or municipal services, is acceptable.
Domain registration proofs or shopfront photographs: If your business operates online, you must provide a domain registration certificate or a link to your mobile app. Proof of domain registration is mandatory. For retail businesses with physical locations, you need to submit photographs of your store, including inventory images.
Common Rejection Reasons & Remedies
Now, let’s talk about some key reasons why your merchant account application might get rejected.
One major reason is excessive chargebacks, meaning your company has experienced more than 1% chargebacks with your previous payment processor. If this is the case, getting a merchant account approved can be difficult. However, there are steps you can take to improve your chances in the future. Using chargeback alert services can help you control your chargeback percentage significantly. These alerts notify you automatically whenever a customer disputes a transaction with their credit card company. This gives you time to reach out to the customer, initiate a refund, or convince them to withdraw the dispute. Both approaches increase the chances of reducing your chargeback rate.
Another common reason is poor credit history. The best way to overcome this issue is to offer an upfront security deposit if your payment processor flags it as a concern. Agreeing to a fixed reserve amount reduces the processor’s risk, which may lead them to reconsider your application.
The third major reason for high-risk merchant account rejections is insufficient documentation. Payment processors require specific documents to process your application, and failing to provide them on time can lead to rejection. For instance, if you’re running a CBD business, you’ll need to provide lab certificates. Dropshipping or e-commerce merchants must submit supplier agreements. Airlines may be required to provide an IATA certificate. Crypto exchanges must submit their exchange license, while skill gaming companies often need a legal opinion signed by a lawyer.
In the next section, we’ll discuss how to find the best high-risk merchant account provider, covering essential criteria such as fee transparency, industry experience, and global transaction processing capabilities.
Choosing the Right High Risk Merchant Account Provider
Provider comparison checklist
You should evaluate several providers based on a number of factors to make sure you get a trustworthy high-risk PSP. This way you will be able to find a provider that offers top-notch features, dependable services, and affordable rates.
First, find out the rates for credit card processing. In most cases, the transaction fee for a high-risk merchant account ranges between 3% and 5%. However, your profit margins will be impacted if the provider imposes hidden fees like chargeback penalties or monthly minimum fees. To avoid paying extra costs, it is best to deal with a provider who offers clear, transparent pricing.
You should also consider the contract’s flexibility. Search for a provider that offers a month-to-month contract. Stay away from companies that force you into long-term contracts or charge early termination fees.
Make sure the payment processor you choose allows international processing. The processor should be able to manage unexpected spikes in transactions brought on by seasonal demand for your business. Select a payment processor.
Warning Signs to Avoid
Stay away from processors that impose additional costs. Payment service providers typically bill these fees as reserves or application fees. This might be a warning sign that the supplier is not trustworthy.
Avoid collaborating with a provider who lacks industry references or a solid reputation. Ask about providers’ experience, merchants they work with, and business longevity. Verify whether they can connect you with a respectable acquiring institution, whether they have online reviews, and whether they can offer references.
Review the merchant account agreement carefully. Don’t let payment processors force or manipulate you to sign a long-term agreement. A lot of payment service providers attempt to bind merchants to contracts that last three to five years; this can be bad.
We remember a merchant who contacted us after first contacting another provider. That provider was forcing the merchant into a five-year contract with a $1,000 termination fee. The business was selling subscription boxes. Thankfully, they contacted us, and we put them in touch with a provider who offered a month-to-month agreement.
Never say yes to a processor that offers subpar customer support. Your merchant account and payment gateway are the foundation of your entire high-risk eCommerce company. You might require help at any moment. Make every effort to deal with a merchant account provider that provides round-the-clock customer service.
Risk Mitigation and Compliance in High-Risk Merchant Accounts
Mitigating risk in high-risk industries requires a combination of strategies, advanced technology, adherence to compliance standards, and proactive dispute resolution steps. In this section, we will discuss advanced fraud prevention tools, compliance frameworks, and chargeback workflows that help high-risk merchant accounts operate smoothly for the long term.
Advanced Fraud Prevention Tools
A reliable high-risk merchant processor utilizes advanced fraud prevention tools. These tools allow the processor to identify and prevent fraud in real time. Various software solutions available in the market leverage artificial intelligence to detect suspicious transactions. These software programs use machine learning algorithms to analyze thousands of data points, including IP addresses, geolocation, device fingerprints, and purchasing history. All these factors help in identifying and mitigating fraudulent transactions.
3D Secure is another effective tool that reduces the risk of fraudulent transactions. With 3D Secure, high-risk payment gateways require customers to submit authentication proof, such as a one-time password (OTP). If the customer fails to provide the OTP, the transaction will not proceed. Additionally, the time available for submitting the OTP is limited, and if not entered within the given timeframe, the payment page refreshes automatically. 3D Secure authentication is particularly beneficial for industries such as travel agencies, airline bookings, social gaming, and money transfers.
Global compliance frameworks
Merchants and payment processors must always comply with international regulations, especially when selling products and services in the European Union. In such cases, merchants must adhere to UK CDR compliance. Crypto exchanges, gaming, gambling, and money transfer companies must pay special attention to AML (Anti-Money Laundering) regulations to ensure compliance and avoid regulatory issues.
Chargeback Prevention
Chargeback prevention plays a crucial role in maintaining account stability. Tools like Order Verification and Chargeback Alerts are highly effective in reducing chargebacks. When merchants use these tools, they receive real-time alerts about disputes, giving them the opportunity to resolve issues before they escalate.
Additionally, merchants should use clear billing descriptors and maintain post-purchase communication with customers. This approach helps in preventing friendly fraud and enhances customer satisfaction.
For high-risk merchants, a combination of fraud detection tools and strategic risk management is essential. By implementing these measures, businesses can ensure long-term account stability, reduce financial risks, and safeguard themselves from potential losses.
Future Trends and Technologies Shaping High-Risk Merchant Accounts
The highest payment processing industry will experience significant changes in the coming years. Key transformations will include advancements in blockchain, increased use of artificial intelligence, and the rise of decentralized finance. Along with these, several regulatory framework modifications will primarily focus on fraud prevention. These reforms will provide substantial benefits to merchants by reducing fraud risk and making transactions more secure and faster than ever before.
Blockchain and decentralized finance will enhance transparency and trust within the merchant processing industry. Running a high-risk e-commerce business will become easier. For example, smart contracts will automate refunds, reducing disputes. Merchants will increasingly use cryptocurrency for cross-border transactions to avoid traditional banking delays.
Artificial intelligence will play a crucial role in fraud detection and improving overall operational efficiency in merchant accounts. Machine learning will enable credit card processing companies to understand user behavioral patterns—such as mouse movements or purchasing history—and instantly block suspicious transactions in real time. Decentralized finance will emerge as an alternative to traditional banks, catering to the financial needs of high-risk businesses. High-risk merchants will benefit from peer-to-peer funding solutions.
Payment processors will heavily integrate artificial intelligence into their compliance departments. We expect a significant increase in AI utilization in underwriting departments by 2030, which will enable payment processors to reduce their overall human resource costs. Decentralized finance will become highly regulated, similar to traditional bank-based finance today. Smart contracts will drastically lower chargeback percentages. Additionally, many new high-risk industries—primarily driven by artificial intelligence—will emerge, requiring specialized merchant accounts tailored to their needs.
Frequently Asked Questions: High Risk Processing
Are there alternatives to High-Risk Merchant Accounts?
It is a known fact that high-risk accounts are the best solutions for most high-risk businesses, but there are various other options as well. Some of these are cryptocurrency payment processing accounts, e-checks, and ACH. Sometimes it may become impossible for certain businesses to get a credit card processing account even if they are technically operating in an approved industry. This may include reasons like being listed on the MATCH list or TMF. In such scenarios, we advise merchants to start with alternative payment options and build their processing history.
What are the biggest mistakes of high-risk merchants?
High-risk merchants sometimes make mistakes that can significantly reduce their chances of account approval. Here are two common pitfalls to avoid:
Misrepresenting the Business: Some merchants attempt to hide their real business and present something else. However, underwriters are trained professionals skilled at differentiating between genuine and false representations. If an underwriter identifies that a merchant is displaying a false business model, it can result in permanent rejection from that processor.
Submitting Multiple Applications: Another significant mistake is the restlessness of high-risk merchants. They sometimes submit applications to multiple providers simultaneously, hoping to improve their chances of approval. Unfortunately, this approach often backfires because the number of verified high-risk processors is very limited in each region. If the same processor receives your application from multiple Independent Sales Organizations (ISOs), it won’t create a good impression. You don’t want to appear desperate, so stay calm and let a reputable company handle your high-risk merchant services search.
How to Choose the Billing Descriptor for a High-Risk Merchant Account?
The billing descriptor is crucial as it identifies the merchant on card account statements and merchant receipts. When choosing a billing descriptor:
- Some merchants prefer to use their company name
- Others opt for a phone number
- Some may choose a combination of both
If your business customers prioritize privacy, it may be better to simply use a phone number as your descriptor.
What are some most common misconceptions about High-Risk Merchant Accounts?
Only shady businesses need high-risk accounts. This is not true. In fact, legitimate businesses in industries like travel and health supplements are also categorized as high-risk.
“High-risk accounts mean low approval rates. Many payment processors that specialize in supporting high-risk merchant accounts offer highly competitive approval rates for qualifying businesses. Some even claim up to 90% approval.
Chargebacks will destroy my business.. It is important to be cautious about chargebacks; however, many high-risk payment providers offer advanced tools and filters that effectively help businesses in reducing chargeback instances. Along with that, specialized services like CDRN notification can also be quite effective.
What is the role of High-Risk merchant Accounts in Fostering Economic Inclusivity?
High-risk merchant accounts play a vital role in the global economy. These payment processors work with businesses that traditional payment providers often avoid. They support industries that other processors consider reputational risks, such as adult entertainment, cannabis-related products, and fintech startups.
Partnering with a payment service provider with experience in managing businesses similar to yours is crucial if you are a high-risk merchant. Your processor should have advanced tools to help minimize fraudulent transactions. While high-risk merchant accounts are generally more expensive than standard accounts, negotiating competitive rates with your payment provider is key. If lowering transaction fees is not an option, consider requesting a reduction in rolling reserves.
High-Risk Merchant Processing Final Words.
High-risk merchant accounts serve as a lifeline for businesses operating in volatile industries such as cryptocurrency exchanges, online gambling, CBD, and subscription-based services. These accounts provide businesses with market access despite high chargeback rates, increased fraud risks, and intense regulatory scrutiny.
For merchants, it is crucial to utilize advanced fraud prevention tools, especially those powered by artificial intelligence, and implement 3D secure processing. Additionally, aligning with global compliance frameworks like CDR and AML while maintaining transparent communication with customers can significantly reduce fraudulent transactions and chargebacks.
QuadraPay is a proud reseller of various high-risk payment processing companies in the US, UK, and the European Union. With vast experience in assisting hard-to-place merchants, we can provide significant benefits to your business. Contact us today for a zero-obligation free quote!
Suggested Resources
https://www.mastercard.us/en-us/business/overview/support/rules.html
