High risk merchant accounts allow organizations that are deemed high-risk to accept payments online. In the world of online merchants, the ability to process credit card transactions is vital to the survival of your business. In order to process those credit card transactions though, you need a merchant account with an acquiring bank. Not just any type of merchant account though, you’ll need a high risk merchant account.

What is Considered a High Risk Merchant?

There are a few industry standards that classify a merchant account as a high risk. A wider group of businesses falls in the grey area because they do not have definitive guidelines if they are what is considered a high-risk business. High risk merchants don’t qualify for traditional processing agreements. They’re stuck working with acquirers and processors who offer high risk merchant services and are willing to accept liability for the increased risk associated with these businesses (known as a high-risk payments processor). As you might imagine, “high risk” service comes with a higher price tag. Things that may classify your business as “high risk”:

  • Accepting Payments Online aka CNP or Card-Not-Present
  • Merchant Code Categorization (SIC/NAICS/MCC)
  • Reputational Risk for the Bank
  • Poor Credit Score
  • High Chargeback Volume
  • High Refund Count
  • High-Ticket Volume
  • Trial Offers
  • Subscription and Continuity Pricing

PayMystic has one of the widest lists of approved industries out of all the best high-risk merchant services providers available on the market. PayMystic works with adult, vape products, tobacco products, CBD Merchant Services, firearms merchant accounts, electronics, coins, currency & collectibles, and other products. And for high-risk services, PayMystic works with educational and online seminar brokers, IT support, multi-level marketing merchant services, web design/developers/hosting, SEO services, protection services, social networking websites, telecommunication services, and a lot more. See our full list of verticals here.

Why Does My Business Classify as a High Risk Merchant?

Merchants may be considered high risk for a plethora of reasons. What many people do not realize is that all card-not-present (CNP) transactions are considered to be higher risk by the banks and incur higher processing fees than card-present (CP) transactions. Why is that? Well, CNP transactions are seen as increasingly risky because EMV chip adoption has moved cyber criminals to eCommerce. This means merchants who accept CNP transactions are at an increased risk of fraud and charge-backs unless they have the proper risk management tools and a high risk processing partner who understand the unique challenges facing CNP merchants.

If a merchant is launching a new business without any prior processing history, two major factors come into play: the owner(s) credit score and merchant classification code will be the upmost important consideration. While each processor calculates risk differently; charge-backs and reputational risk are key factors in their final decision. A merchant with a history of chargebacks exceeding thresholds will need to explain why, and most importantly, their plan in advance to avoid high chargebacks in the future.

Why do Chargebacks Matter in High Risk?

Chargeback laws are creations that protect the consumer’s vulnerability against fraudulent businesses. One of the essential strategies you can employ is to find legal ways of reducing the fee.

Nine of every ten chargebacks fall into the friendly fraud category, also known as non-threatening chargebacks. The variation between a traditional merchant account and a high risk merchant account is that the traditional one monitors the lowest chargeback fees. Banks follow the ratio between the chargeback and the transaction to verify if it surpasses the one percent threshold.

A traditional account with a chargeback of more than the set threshold is bound to experience sudden termination by the acquirer. The business stands the risk of going out of business, ending its procession of credit cards, or seeking a high risk merchant account.

Contrastingly, even a merchant account with bad credit rarely faces termination due to excessive chargebacks. The merchant may pay higher fines to cater to the set business dealings. It is rare for a high-risk merchant account to experience termination because of excessive chargebacks. The most likely scenario is higher fees and competitiveness. This case is because the merchant has to pay a fee for each chargeback, inclusive of the required administrative costs. A high-risk payment processor will have exceedingly high prices for each instance. Additionally, the prices will be higher if the merchant already operates a high-risk business.

High Risk Merchant Processing Fees

All merchants are responsible for paying certain fees in order to process credit card payments. The fees for low-risk accounts, however, will be significantly lower than those associated with high risk merchant accounts. Each processor and acquirer calculates risk differently. To be considered a high risk, a completely different set of criteria come into play. Generally speaking, risk is calculated in terms of fraud and chargebacks. How likely is the business to experience chargebacks? The more chargebacks, the higher the risk. Some merchants actually seek out high risk payment processing, as it does come with certain advantages over traditional processing.

Pros and Cons of High Risk Merchant Accounts

Are you considered a high-risk merchant? It is recommendable for you to adopt realistic expectations of the business’s proceedings. One overwhelming fact is these businesses will often pay more than their counterparts. Unfortunately, you will be paying a considerably high cost to receive the same services as low-risk businesses. Some of these charges include the following penalties:

  • High account fees
  • High processing fees
  • Early termination fees
  • Increased chargeback fees
  • Transaction limits
  • Rolling reserve requirements that
  • Limited cash flow
  • Long contract requirement with automatic renewal and yearly increments

If you’re considering the acceptance of eCommerce transactions, being labeled “high risk” can be a deal-breaker. It’s important to evaluate the pros and cons–and risks–of your business venture beforehand. Fortunately, a high-risk merchant account is not only about gloom. The benefits of using these accounts outweigh the challenges. There are plenty of credit card processing companies that accept high-risk business types. Some of these companies specialize in a high-risk business, while others consider the high-risk section to just be a part of their overall business. PayMystic is one of the best high risk credit card processing companies on the market for high-risk businesses.