High-risk Merchant
Accounts Explained

If your business is being denied modern payment services and labeled “high-risk”, it could be down to the risk of chargebacks in your sector being high and other critical issues. That shouldn’t stop you, though! At PaymentUSA, we have dedicated strategies just for you. 

Just because your business carries significant risk shouldn’t restrict your customers from enjoying a stellar experience on your website. Many people have issues understanding whether their business needs a high-risk merchant account. While it is easy to confuse the regular merchant account for high-risk merchant accounts, they each have distinguishing features.

These details are necessary to help you make an informed decision on what kind of account is right for your business. This article will shed light on the essential facts you need to know and why PaymentUSA’s high-risk merchant services are the right choice for your company.

Features that Make a Business High Risk

Several features can qualify your business as high-risk. While the term might sound negative, it doesn’t mean your company is terrible. Cultural perceptions, and legal frameworks, were initial pointers, although they are gradually shifting. Yet, many tier-one financial institutions still view these industries as unacceptable and are reluctant to provide a merchant account to high-risk businesses. 

Here are some aspects providers use in assessing a high-risk merchant account.

Industry type

The industry influences the decision of whether your business is high-risk or not. This is mainly dictated by a merchant’s category code. Influential characteristics include:

  • If the industry is subject to influence from the government. For instance, firearms, tobacco, and alcohol are under strict government regulations. Hence, most traditional payment providers fear regulation changes that could impact the market. 
  • If the average transaction carried out regularly is higher than most. 
  • If the industry depends on seasonal or weather conditions. 

With the changing conditions that several banking institutions consider daily, you may not realize that your industry has been listed as high-risk until you apply for merchant account services.

History of processing

A chargeback occurs when a cardholder requests that the issuing bank reverses or refunds a transaction. As the merchant, you would have to pay all charges incurred. The higher the number of chargebacks, the higher the likelihood that financial firms will consider you high-risk and reject your application. This is because chargebacks often mean poor business ethics or suspicious activities. 

Most providers determine a business’s chargeback calculation by comparing the total number of transactions with the number of payments ending in a chargeback, expressing the result as a percentage value. While a common threshold is one percent chargeback for a single calendar month, not all financial institutions reveal their figures. In addition, others may calculate based on the number of transactions, while others rely on the dollar amount. 

This hurdle can be cleared if you use a payment processor with a high-risk merchant account offer. They set their chargeback ratio benchmark higher, up to three percent. They will also discuss mitigation plans as part of their strategies. Others will place your business on a probationary period if your chargeback ratio exceeds their threshold. 

This is a crucial reason why reputable payment processors like PaymentUSA, which offers high-risk merchant accounts, should be your choice.

Personal credit score

Your personal credit score as a business owner is another factor. Even when you have separated your personal finances from your company, as is a requirement for limited liability companies, your personal credit score will be assessed. 

Most traditional banking institutions will reject applications for a merchant account if your personal credit score is poor. Yet, reputable entities like PaymentUSA can combine your score with the business score, together with other factors, to come to a fair assessment. 

You should note that if you have a low score, you will have to sign a guarantee as part of the requirements of opening a high-risk merchant account, especially when the business has yet to get its own rating.

Banking activity

Just like processing history, your bank statement also plays a massive role in the risk level assessment for your business. Most entities that offer high-risk merchant services use this factor to diagnose your company’s financial health. 

Here, institutions check whether there is liquid capital on the ground to fund your business And whether you practice good financial management to avoid overdrafts. This also determines the amount of credit a business gets if the application is approved. Most offshore high-risk merchant account holders submit different account statements from all the institutions they bank at. 

Payment methods

Your processing history displays the most used and accepted payment methods in your business. Some options have better security than others and this aspect forms a crucial part of the risk assessment profile. For card payments, there are two main methods of payment:

  • Card present
  • Card-not-present (CNP)

The card present mode requires a card at your business’s physical location, where a point of sale (POS) terminal is used. Online card payments require the card-not-present option. The customer only needs to share their card details, and payment occurs via a virtual terminal. 

CNP payments are considered high-risk because they are prone to chargebacks and fraud since it is challenging to identify and confirm the cardholder.

Who Needs a High-risk Merchant Account?

High-risk merchant accounts are not for everyone, which is why the selection process is strict. As it stands, no authority or guidelines in the payment industry dictate whether a company is high-risk or not. The decision rests solely on the payment processor, payment service provider, and bank involved. 

The more complex the process is before a traditional bank will accept your application for a merchant account. If you do find one, there are many hoops to jump through. Hence, you should subscribe to specific merchant services for high-risk businesses to manage your business while still providing top-quality services to your customers. 

Several merchants need a high-risk merchant processing account. These businesses need the help of trusted partners like PaymentUSA to provide them with high-risk merchant services. If you operate in one of the following sectors, you’ll benefit from a high-risk merchant account:

Nutraceuticals

Most merchants in this category struggle to find online payment processing services because of the significant risks regarding continuous billing models and chargebacks. The risk springs from being involved in health supplements, the sale of substances that come with medical benefits, and the promise of prevention and treatment of ailments. 

If your company specializes in products like dietary fiber, probiotics, vitamins, and related products, you’re a Nutraceutical merchant. You need high-risk merchant services to secure your payment structure.

Adult products and services

Another group of merchants with significant risk are those in the adult industry.  Like nutraceutical merchants, the risk of chargebacks and fraudulent activity here is high. This, among other reasons, is why financial providers are often reluctant to grant payment services. But while it may be almost impossible to get a high-risk merchant account with traditional financial institutions, all hope is not lost.

With PaymentUSA, it is possible to get access to our strategic solutions no matter the type of service you provide.

Vapes and E-Cigarettes

The vape and e-cigarette industry is a regulated sector with oversight from the government. Due to regular crackdowns on vape and e-cigarette sales, most financial firms are skeptical of approving merchant accounts in this sector. 

As well as the industry, vapes and e-cigarettes also present a risk because of chargebacks. Hence, it could be challenging to find good high-risk merchant services that fit your demands. PaymentUSA has a proven track record of backing merchants that choose us as their payment providers. 

If your company is in the vape and e-cigarette sector, you need a high-risk merchant account. Traditional financial institutions may be unwilling to offer you this service, but PaymentUSA has you covered.

Subscription boxes

If your business works with subscription billing, you should apply for a high-risk merchant account. One of the reasons is the preferred customer payment methods and the recurring billing option. 

As this industry is rapidly increasing, so is the level of chargebacks and other fraudulent moves, as CNP and virtual terminals are the leading payment modes. If you run a subscription-based business, you need to provide fantastic customer service to keep your customers engaged. This is only possible if you have a secure payment mode, which requires a high-risk merchant account. 

PaymentUSA’s foreign and domestic high-risk merchant account allows you to serve your market, no matter the location.

Firearms

Firearms merchants need experienced and reliable payment companies. However, because of the continuous monitoring of the industry by regulatory bodies, they are classified as high-risk merchants and need an account that covers their risk level. Most traditional payment providers are wary of potential legislation changes for firearms that could affect them

CBD products

Although CBD, hemp, and the like are part of the health/nutraceutical industry, their unique status is why we’ve mentioned them separately. Most traditional financial providers reject a merchant account application if they notice the company is involved with CBD. 

The delicate nature of this industry is what makes it high-risk. You will need a high-risk merchant account CBD package that covers all the irregularities involved in this sector, especially since not all states have legalized the sale of CBD. 

If your business deals with CBD, you need a dedicated high-risk merchant account. Remember, the high level of risk means you need a trustworthy partner with a strong record of success and proven strategies to protect your company. 

Other areas where a high-risk merchant account is necessary include:

  • Gambling
  • Forex trading
  • Air travel
  • Antiques
  • Legal services (especially bankruptcy law firms)
  • Auction services
  • Brokering
  • Dating websites
  • Furniture and electronic stores
  • Real estate

Why a High-risk Merchant Account Is Important for Your Business.

Generally, if your business is prone to fraudulent issues like refund scams, chargebacks, and forgery, you are operating a high-risk enterprise. While you may have a failsafe strategy, it may cost you in terms of customer experience. Here are a few reasons why a high-risk merchant account is your best bet.

Worldwide coverage

One of the top benefits of a high-risk merchant account is access to an international market for your business. With this account type, there is the potential to operate in almost every country. This is only possible when you partner with a high-risk merchant services provider that offers support for many currencies. 

Your customer pays for your service or product using their primary currency, and you receive payment in dollars. This makes it easier for your foreign and domestic customers to enjoy high-quality customer service. One of the main benefits of an offshore high-risk merchant account is you don’t need to open a foreign bank account. 

Remember that not all providers offer this feature, but reliable providers like PaymentUSA allow payment in numerous currencies with support from domestic and foreign banks so you can enjoy simple and convenient payment processing.

Protection from chargebacks

Chargebacks are a large part of financial fraud in the United States. When you combine the risk of chargebacks with other risk factors, it’s clear your company needs a high-risk merchant account. Your business is automatically protected when you open such a product. That’s because high-risk merchant services providers offer solutions that take care of these matters. With a high-risk merchant account, you don’t have to worry about your account being shut down in the case of too many chargebacks.

Strong security

Security is a significant aspect of most high-risk merchant accounts. The increasing number of financial scams and levels of fraud have pushed the need for a stable provider with a high level of security to the top of many business owners’ lists of requirements. Ensuring you open an account with a reliable payment processing partner that operates within PCI guidelines – like PaymentUSA – is key. 

PaymentUSA uses security encryption protocols to detect scams and fraud. This way, both your business and your customers are safe from attackers. Remember that the fewer fraudulent transactions your business has, the better its credit score. This opens doors to applying for different facilities that can take your company to the next level.

Premium customer service

If your merchant account provides reliable protection for credit and debit payments, customers will notice. This leads them to drop positive reviews about your company, which is great for growth. As well as that, many will be more than happy to refer your services to others when they enjoy stress-free payment processes.

Common Issues You May Face With High-risk Merchant Accounts

High-risk merchant accounts sometimes come with challenges, including: 

  • Higher merchant fees.
  • You may need a rolling reserve account with a cap of up to 50% of the average monthly volume. 
  • Reserves can be held for 180 days after account closure before they are released. 

What are High-risk Merchant Account Fees?

Your high-risk merchant account is more liable to higher fees than a regular merchant account. While some providers base their charges on the risk level, others have a flat rate that applies to all business applications. For those with varying rates, factors like the industry you operate in play considerable roles in determining the fees. 

Here are some of the charges you should expect:

Processing fees

Every merchant account comes with some level of processing fee for card transactions. This fee usually goes together with a credit card provider’s charge interchange rate. The processing fees are what the provider uses to move payments through the payment gateway and between parties. 

Generally, this fee is a flat rate that applies to all transactions. However, the industry type could be a significant factor in how you are charged. High-risk merchant accounts attract higher fees than low-risk accounts.

Setup fees

Setup fees are part of the requirements of submitting an application. Depending on the industry,  instant approval for a high-risk merchant account becomes feasible if charges are higher. The provider uses the setup fees to ensure your high-risk merchant account is compatible with your system, software, and management tools.

Capture fees

The capture fee pays for the process of getting card details from your customers. This becomes more important if you need a terminal for payments, whether physical or virtual. This could be a POS system or an online shopping cart built for e-commerce sites. This is another crucial aspect for high-risk merchants and should be considered when searching for the best payment provider.

This charge is not fixed, and adjustments happen to fit according to your business demands. While some high-risk merchant service providers allow you to process payments if you go beyond your limit, others place a threshold you can’t cross.

Chargeback fees

The chargeback fee happens any time you experience a chargeback on your merchant account. The processor then has to refund the amount, and you have to pay the fee. Not all providers use this fee.

Termination fee

Before your account becomes active, you need to enter into a contract with the payment processing provider. Hence, if you decide to terminate the agreement, there is a termination fee. High-risk businesses generally have to enter a long-term contract before their high-risk merchant account becomes live. 

Again, not all providers charge this fee. Most offer contract-free deals where you have to service the account every month via a recurring billing method. Be sure to check your contract before you proceed to accept it.

Why Payment USA Should Be Your
High-risk Merchant Services Provider

PaymentUSA was created to meet the needs of online high-risk merchants and provide them access to essential business accounts. With access to many foreign banks and support for diverse international currencies, your high-risk merchant processing account can cater to your global customer base. 

In addition, we have experience highlighting the features of your high-risk business so banks can create industry-specific and customized solutions. Going forward, approvals will be less challenging. If you choose us as your high-risk merchant account provider, we will offer tailor-made strategies that can meet any particular demands you may have. 

Here are a few of the impressive features that inspire merchants to choose us as a partner:

  • We vet banks on a global scale to locate the ideal match for different categories of high-risk merchant services.
  • Our risk management tools include fraud prevention software to keep your business healthy. 
  • We support  134 currencies across various payment modes. 
  • Compliance with PCI guidelines with a PCI-Level 1 secure payment gateway monitored 24/7 and tested continuously. 
  • A well-integrated chargeback system for real-time notifications and alerts for protecting transaction allocation.
  • Superb 24/7 customer support to resolve questions and improve your payment service experience.

Speak with our experienced agents today to find out more about how PaymentUSA can help you do business with a high-risk merchant account.

Payment USA