Everything You Need to Know About High Risk Merchant Accounts

You probably never heard about the term “high-risk merchant account” until your business was classified as one. And it’s a gut punch. It’s like being told that your business is a failure of some kind, or that your clients are worthy, or that somehow the banks don’t trust you.

And in some cases that may seem true but we’re here to tell you it’s not.

It’s simply a technicality and just another hurdle that you as a strong, capable and hard-working entrepreneur can and will overcome.

With credit card payment processing now a crucial part of any business operation, being a high-risk merchant would make it harder for you to get a merchant account to process payments safely and efficiently.

If you get approved, you will be tagged as a high-risk merchant account.

So if you’ve ever been classified as one, here are some of the things that you need to know about a high-risk merchant account:

What is a high-risk merchant account?

It is essentially a payment processing account that’s specifically created for businesses that are high risk to banks. When you are tagged as high risk, it means that your business is more prone to chargebacks than other businesses.

It doesn’t refer to anything that your business has done in the past or how much you’re earning. So don’t take it personally. Technically Tesla is a high risk business, so is Palantir and so is any of the most profitable casinos in Las Vegas.

So you’re in good company!

Why are you defined as a high-risk merchant account?

The truth is, there is no standard for identifying a business as a high-risk merchant account. In fact, it is very subjective, which is why there are several factors that would most likely put you in this category:

  • You are new to the business. A lot of banks consider tenure in granting merchant accounts. If you’re new to the industry, you’ll be thought of as high risk since you’re still not well established and might not have stable funds just yet. If you are a new business, it will be more difficult to get a stable account because so many new businesses struggle the first year. Hang in there.
  • You have high chargeback rates. You can’t put too much emphasis on the importance of avoiding chargebacks as much as you can. High chargeback rates will instantly classify you as high-risk and you’ll surely have a hard time getting approved for a merchant account.
  • You work from home. It’s very important for payment processors to evaluate a business with a physical location. If you work from home, you’ll be tagged as high risk and so does running a business overseas.
  • Your merchant record. If you’ve had a bad relationship with past merchant accounts, you’ll most likely be tagged as high risk. So make sure to keep records and be honest with any mishaps when looking for a new merchant provider.
  • You have a bad credit history. Like almost anything else that involves finances, a bad credit score and history will have a huge impact on your chances of getting a merchant partnership. This is why it’s very important to work on improving your credit before you apply for a merchant account. Your business credit score can be a real drag unless you apply for a high risk merchant account.
  • You’re in a high-risk industry. Some industries are riskier than others. So if your business belongs to a niche that’s deemed as high risk by some payment processors, then you’ll instantly be issued a high-risk merchant account.

Having a high-risk merchant account is not all bad, however.

In fact, after going through some intense reviews and even some scrutiny, you could enjoy benefits such as being able to process higher sales volumes for special sales and launch events, offer recurring payments, and sell a wider range of products and services.

Like any business relationship, finding with and working with the right company is half the battle. Think of your payment processor as your partner here. In many cases, they will be better than a bank because you will be working with a team that is smaller and more focused on ensuring that you are successful.

Don’t be scared about the size. In this case, you want that personalized attention, you want a team that is going to make sure you are successful because if you fail they lose too. This may have been the best thing for you. So take a deep breath, drop your shoulders and start making calls. You got this.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.