Everything You Need to Know about High-Risk Merchant Accounts

Published On: February 19th, 2024
Futuristic Business man with tech bubbles around him

Navigating the world of merchant accounts can be complex, especially when you encounter the term “high-risk.” If you’re wondering what a high-risk or “hard to place” merchant account is, why a business might be classified as high-risk, and what it means for your payment processing capabilities, you’ve come to the right place. This comprehensive guide will explain everything you need to know about high-risk merchant accounts, helping you understand their nuances and how they impact your business.

Key Lessons

  • Gain a clear understanding of what high-risk merchant accounts are and the criteria used to classify a business as high-risk.
  • Learn about the specific challenges high-risk merchants face and the solutions available to manage these accounts effectively.
  • Get insights on how to select the best high-risk merchant account provider for your business needs, considering fees, contract terms, and services offered.

What is a High-Risk Merchant Account?

A high-risk merchant account is a payment processing account designated for businesses that are deemed high risk of chargebacks, business type, or other financial concerns according to the standards set by banks and merchant account providers. This designation affects how you process payments and the conditions under which you do so.

Why Are Some Businesses Classified as High-Risk?

Businesses may be classified as high-risk for various reasons, often related to the potential for financial losses that banks and processors might face. Understanding these reasons can help business owners navigate the complexities of high-risk payment processing.

Industry-Related Risks

Chargeback Rates

Industries with historically high chargeback rates, like travel or luxury goods, pose a greater risk to financial institutions.

Fraud Potential

Sectors prone to fraud, such as electronics or jewelry due to “knock off” product types, require extra scrutiny and security measures.

Regulatory Concerns

Businesses in industries with stringent regulations, like pharmaceuticals, gaming, or tobacco, are often deemed high-risk due to the potential for legal issues and fines.

Business Model Risks

International Transactions

Companies dealing with cross-border sales face higher risks due to differences in currency, payment habits, and legal systems.  The address verification measures that help reduce riskier transactions is also harder due to more unique zip codes and address verification services. 

Subscription Models

Businesses with recurring billing can be risky due to the higher likelihood of disputes and cancellations as consumers can forget what they agreed to 1+ months’ ago.  

High Average Ticket Sales

Companies with high-value transactions are at risk for significant financial loss in the event of chargebacks or fraud especially for Ecommerce or MOTO transactions. 

Financial Health and History

New Businesses

New ventures without a credit history or a proven track record can be seen as risky.

Credit History

Businesses with poor credit scores or a history of bankruptcy are more likely to be categorized as high-risk.

Previous Merchant Account History

A history of excessive chargebacks or a previous merchant account termination can flag a business as high-risk.

Common High-Risk Industries

Understanding which industries are typically classified as high-risk can provide valuable context for businesses navigating the complexities of merchant accounts. Here’s a look at some common industries often deemed high-risk by financial institutions and merchant account providers:


Online stores face higher risks due to the potential for fraud, chargebacks, and the absence of physical card verification as these are considered card not present transactions. 

Travel and Hospitality

Businesses in this sector deal with high-ticket transactions and advanced booking, leading to a greater likelihood of cancellations and chargebacks.

Adult Entertainment

Due to the controversial nature and varying legal status across regions, adult entertainment businesses are considered high-risk.

Gaming and Gambling

The gaming and gambling industry faces regulatory scrutiny, high-volume turnover, and a fluctuating customer base, contributing to its high-risk status.

Pharmaceuticals and Nutraceuticals

These industries face strict regulations and a higher potential for chargebacks due to customer dissatisfaction or disputes over product efficacy.

Subscription Services

Businesses with recurring billing models are prone to chargebacks, especially if customers forget about recurring charges or are dissatisfied with the service.

Tech Support

The tech support industry often faces challenges with customer disputes and has a higher likelihood of chargebacks, especially for remote or online services.

High-Ticket Items

Businesses selling high-value items, like jewelry or electronics, are at a higher risk due to the significant financial impact of potential chargebacks or fraud.

Characteristics of High-Risk Accounts

High-risk merchant accounts come with specific features designed to mitigate the increased risk assumed by the account providers.

Financial Terms

  • Increased Fees – Higher processing fees and additional charges compensate for the increased risk.
  • Rolling Reserves – A percentage of transactions may be held for a certain period to cover potential chargebacks.
  • Longer Settlement Periods – Funds may be held longer before being transferred to the business bank account to ensure transaction validity.

Contractual Terms

  • Stricter Agreements – Contracts may have more stringent conditions, including extended terms and detailed compliance requirements.
  • Early Termination Fees – Breaking a contract can come with significant financial penalties.

Banker in a futuristic maze

Securing a merchant account provider that is willing to partner with high-risk businesses can be an operational challenge. The search for a reliable provider requires thorough vetting and negotiation to ensure that the terms align with the business’s ability to sustain itself under stricter financial and contractual conditions.

Furthermore, high-risk merchants must adhere to more stringent security measures to mitigate the risk of fraud and chargebacks. Compliance with these enhanced security protocols is not just a recommendation; it’s a necessity to maintain the integrity of the merchant account and protect the business from potential financial losses and legal complications.

Reputationally, high-risk businesses must work harder to establish trust with customers and financial partners. In industries prone to higher chargeback rates and disputes, maintaining positive customer relations becomes paramount. The high-risk label can sometimes cast a shadow over a business, making it imperative for these merchants to demonstrate their commitment to customer satisfaction and transaction security.

Navigating these challenges requires a strategic approach, focusing on robust financial management, diligent compliance with security standards, and proactive customer service. By addressing these issues head-on, high-risk merchants can forge a path to stability and success, even in the face of the added complexities that come with their classification.

Managing a High-Risk Merchant Account Effectively

Effectively managing a high-risk merchant account requires diligence, transparency, and a proactive approach. Merchants must regularly monitor their transactions to detect and address any signs of fraud swiftly. Implementing advanced fraud detection tools and maintaining rigorous security protocols are essential to safeguard customer data and minimize the risk of chargebacks.

Balancing cash flow is another crucial aspect, especially with the potential for rolling reserves held by account providers. Merchants should develop robust financial strategies to ensure they can operate effectively, even with a portion of their funds temporarily inaccessible.

Communication is also key. By being transparent with customers about payment processes and maintaining excellent customer service, merchants can reduce misunderstandings that lead to chargebacks. Additionally, establishing clear refund and return policies can help mitigate dispute rates.

Reducing Your Business’s Risk Level

Lowering the risk level associated with your business can lead to more favorable merchant account terms and broader financial opportunities.

Some of the things you can do to contribute to a reduced risk profile include:

  • Improving your credit score
  • Maintaining a transparent transaction record and ending bank balances
  • Demonstrating a low chargeback ratio

Businesses can also invest in training for staff to recognize and respond to fraud indicators, enhancing internal controls and customer verification processes. Demonstrating a commitment to security and compliance can not only reduce your risk level but also build trust with your customers and financial partners.

Your Action Plan – Reduce Risk Factors To Achieve Low Risk Merchant Account Status

A “low-risk” merchant account is possible with the right plan, even for “high risk”merchants. Here are some steps to add to your to-do list:

1. Implement Advanced Fraud Prevention Techniques

Utilize a combination of security tools such as AVS (Address Verification Service), CVV verification, and sophisticated fraud detection software that employs machine learning and artificial intelligence to identify and prevent fraudulent transactions. ✔️

Conduct regular audits of your security measures to ensure they are up to date and effective against the latest fraud tactics. ✔️

Ensure that all customer data, especially payment information, is encrypted and stored securely. Adhere to PCI DSS guidelines to protect data and build trust with your customers. ✔️

2. Reduce Chargebacks

Provide clear, detailed descriptions of products and services to avoid misunderstandings that can lead to chargebacks. Ensure your contact information is easy to find so customers can reach out with issues before initiating a chargeback. ✔️

Address customer disputes and inquiries promptly and professionally. A responsive customer service team can often resolve issues that would otherwise result in chargebacks. ✔️

Monitor transactions for unusual patterns that could indicate fraud or customer dissatisfaction. Addressing these issues proactively can prevent chargebacks. ✔️

Send post-purchase follow-up communications to gather feedback and address any potential issues early on. ✔️

3. Improving Your Credit Score

Ensure that all bills and financial obligations are paid on time. Late payments can negatively impact your credit score. ✔️

Keep your debt levels manageable. High levels of debt can lower your credit score, making it harder to negotiate favorable terms with merchant account providers. ✔️

Monitor your credit reports regularly to ensure there are no inaccuracies that could be affecting your score negatively. Dispute any errors you find with the credit bureaus. ✔️

4. Educate Staff and Customers

Regularly train your staff on the latest fraud prevention techniques, chargeback procedures, and customer service best practices. Educated employees are your first line of defense against many risks. ✔️

Educate your customers on secure transaction practices, especially in e-commerce settings. Providing information on how to recognize secure websites and safe payment protocols can reduce fraud and chargebacks. ✔️

Selecting the Right High-Risk Merchant Account Provider

Choosing the right high-risk merchant account provider is a critical decision that can significantly impact your business’s operational efficiency and financial health. When navigating this selection process, several key factors should be meticulously evaluated to ensure that the provider aligns with your business’s specific needs and challenges.

scale in an office with caution on one side and High Risk Merchant on the other

Industry Experience

Look for providers that specialize in or have extensive experience with high-risk industries and businesses. Their understanding of the unique challenges and risks associated with your sector can offer tailored solutions and insights.

Assess the provider’s track record. A history of successful partnerships with high-risk businesses can be a strong indicator of their capability to manage your account effectively.

Fee Structure and Contract Terms

  • Transparency – Ensure that the provider offers a clear and transparent fee structure. Understanding all potential fees, including setup, monthly, and transaction fees, is crucial to avoid unexpected costs.
  • Flexibility – Seek out providers with flexible contract terms. High-risk businesses can benefit from providers who understand the fluctuating nature of their operations and offer contracts that accommodate these variations.
  • Penalties and Liabilities – Be aware of any penalties or liabilities in the contract, especially concerning chargebacks and fraud. Knowing these details upfront can help you make an informed decision.

Support and Tools

Evaluate the provider’s fraud prevention tools and strategies. Effective fraud prevention can reduce the occurrence of chargebacks and unauthorized transactions, safeguarding your revenue and reputation.

Check if the provider offers chargeback management assistance. This support can be invaluable in disputing and resolving chargebacks efficiently, minimizing their impact on your business.

Also, consider the level of customer service support. Responsive and knowledgeable customer service can significantly ease the management of your merchant account, especially when urgent issues arise.

Scalability and Future Growth

Choose a provider that can scale with your business. As your business grows or evolves, your payment processing needs will change. A provider that offers scalability can accommodate increased transaction volumes or expansion into new markets.

Furthermore, assess the provider’s ability to integrate with your existing systems and support emerging payment technologies. This integration is vital for providing a seamless payment experience for your customers and can influence your business’s adaptability to future trends.

Making an Informed Decision

Don’t hesitate to compare multiple providers. Analyze their offerings, fees, and the value they provide to make a well-informed decision. Consider seeking references or reading reviews from other high-risk businesses. Their experiences can provide valuable insights into the provider’s reliability and the quality of their service.

Selecting the right high-risk merchant account provider is a decision that warrants careful consideration and due diligence. By focusing on these critical aspects, you can partner with a provider that not only meets your current needs but also supports your business’s long-term growth and success.

Vector Payments for High Risk Merchant Accounts

At Vector Payments, we specialize in offering payment processing solutions for businesses considered high-risk. We understand the unique challenges you face, from higher chargeback rates to regulatory hurdles, and we’re here to help you overcome them. Our advanced technology and deep industry knowledge enable us to provide secure, compliant, and seamless payment experiences tailored to your needs.

Our services, including credit card processing, ACH payments, chargeback prevention, and fraud protection, are designed to enhance the reliability and security of your transactions. We pride ourselves on our personalized support and consultancy, aiming to build long-term relationships with our clients through transparency, competitive pricing, and adaptable solutions.  This allows us to handle the payment side of things while you focus on what you do best!  

For high-risk merchants seeking a dedicated payment processing partner, Vector Payments is your go-to choice for robust and reliable payment solutions. Contact us today to get started.


How often should I review my high-risk merchant account status?

Regularly review your account status, ideally quarterly, to assess your risk level, evaluate any changes in fees or terms, and identify opportunities to lower your risk profile.

Can I switch from a high-risk to a low-risk merchant account?

Yes, if you demonstrate a consistent reduction in chargeback rates and maintain robust security measures, you can negotiate with your provider or seek a new one that may offer a lower-risk account.

Are there industry-specific high-risk merchant account providers?

Yes, Vector Payments specializes in all industries, understanding their unique challenges and offering tailored services and support is what we do best! 

How can I ensure compliance with PCI DSS as a high-risk merchant?

Regularly conduct PCI DSS self-assessments, invest in ongoing staff training, and utilize security tools and services that align with PCI DSS requirements to maintain compliance.  Vector Payments also can help with this.