What Is Considered a High-Risk Merchant?

April 10, 2021

The high-risk merchant list: It’s a list some businesses are destined to be on, and it can impact their ability to function. 

Businesses working with banks or processing merchants are usually placed in one of two categories: high risk or low risk. 

Below, we’ll explore what those categories mean, when you may be considered a high-risk merchant, and the options available to you.

High-Risk vs. Low-Risk Merchants

When it comes to getting a card processing account, some businesses can face difficulties simply because they are designated as “high risk.” Meanwhile, those designated as “low risk” will have their pick when it comes to processing accounts. 

A high-risk merchant is named as such because it presents a high risk to the bank. These businesses are typically prone to frequent chargebacks, sell products whose legality is in question, or have owners with poor personal credit. Common industries that are considered high risk include:

• CBD Online Retailers
• Companies That Sell Adult Products
• Firearms Sellers
• Debt Collection Agencies
• Online Gambling Casinos

Businesses with low revenue as well as startup companies will also usually be placed in the high-risk category.

Low-risk merchants have no history of chargebacks, don’t need to process large sale amounts, and have business owners with good credit histories. The products these businesses sell are typically things such as books, clothing, and even office supplies. Their products are not seen as risky and are legal. 

Why Do Merchants Need Payment Processors?

So, if you are considered a high-risk merchant, you may wonder if you even need a payment processor. Can’t you just use Stripe alternative methods, such as PayPal or Venmo? While you could, it will severely limit you, and if you are an ecommerce business, other methods likely will not work for you.

An ecommerce merchant account, or any payment processing account, allows merchants to accept debit and credit card payments, which is the most common payment method of shoppers today. For online shops, cards are often the only payment method available to you to ensure a sale.

Merchant Account vs. Payment Gateway: How Payment Processing Works

Before you start looking for an online payment solution, it is important to know the different pieces that make it possible for you to receive your payment. 

The first important piece is a merchant account. This is the account where the funds from payment transactions are held. Businesses cannot touch this money. After the customer’s bank verifies the payment, the funds are then moved from this holding account into your business bank account. 

The payment gateway is the link between your merchant account and the customer’s bank. This is what allows funds to flow from the customer’s account to yours after a transaction is cleared and allows the funds in the merchant account to be released to your business account.

A merchant processor, which most businesses use, works with both these items. It allows your business to accept the customer’s payment via a debit or credit card while the funds work to be verified and released to you.

High-Risk Merchant Solutions

Although being a high-risk business can impact the ability to get loans, insurance, or other business needs, it does not have to be a death sentence for your business. There are options available to high-risk merchants to meet their payment processing needs. 

There are companies that specialize in high-risk merchant processing that you can use. However, these companies usually require:

• Higher Processing Fees
• Long-Term Contracts
• A Reserve Account

May companies that work with high-risk merchant account processing will renegotiate fees and account setups the longer you are with them — and if you keep your account in good standing. 

In Conclusion

Today, it is a necessity for businesses to be able to process credit and debit cards. To be able to accept cards securely, businesses turn to processing services. However, for those who are considered a high-risk merchant, finding an account processor may be difficult.

There are many factors that indicate if you are going to be considered a high-risk merchant. Your personal credit score, the types of goods or services you sell, and your business history all determine your merchant classification.

If you do fall into the high-risk merchant list, have no fear. There are still options out there to allow you to accept much-needed credit and debit card payments. 

Sources:

https://securionpay.com/blog/high-risk-merchant-account-what-it-is-and-how-it-works/

https://chargebacks911.com/high-risk-merchant-accounts/

http://home.bluesnap.com/snap-center/blog/merchant-account-vs-payment-gateway/

https://www.paykings.com/am-i-considered-a-high-risk-merchant/

https://www.merchantmaverick.com/high-risk-business-company-industry/
https://www.bambora.com/en/ca/learn/merchant-account-vs-payment-gateway/#:~:text=Terminology%20101-,A%20merchant%20account%20is%20a%20holding%20account,about%20payment%20transactions%20is%20collected.&text=Meanwhile%2C%20a%20payment%20gateway%20is,a%20payment%20transaction%20is%20cleared.

Merchant Account vs. Payment Gateway: What’s the Difference?