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High Risk Merchant Accounts

Merchants applying for merchant accounts must go through a bank's underwriting process; This allows the bank to assess the degree of financial risk the merchant presents to the institution — specifically, how susceptible the merchant is to fraud and chargebacks.

If, during this underwriting process, the bank determines that your business is high-risk, your application for a merchant account may be rejected.

You may not even realize that you are a high-risk merchant until you apply for a credit card merchant account or processor. There's no rule that says that you must be notified of a high-risk designation, but some factors can help predict whether your business will be flagged.

Generally, two central factors constitute a high-risk classification:

  1. The company operates within a high-risk industry.
  2. The risk of financial failure within that industry is significant.
  3. The company poses a reputational risk to the bank (e.g., adult or crypto)

Your business may be considered high-risk due to the industry you are in or your specific business practices as a merchant.

It should be noted that "high-risk” is a catch-all term used by card associations to identify business models and merchant types that have been disproportionately susceptible to fraud and chargebacks.

Payments made without a face-to-face interaction pose greater risk, so most card-not-present (CNP) business models get flagged as high-risk,, hitting e-commerce businesses especially hard.

What Happens if You're High-Risk?

When you’re deemed high-risk, your associated bank has to take higher risks with your business, and here's why:

The merchant bank pays the merchant for sales before the consumer receives their statement (i.e., before the consumer pays their bill). Therefore, merchant banks are essentially extending credit, making them subject to any refunds, disputes, and chargebacks. That's why banks closely scrutinize revenue opportunities against inherent risks for high-risk merchants.

High-risk businesses also face higher fees because the services provided must be highly specialized to help merchants stay in good standing. A relatively small number of banks offer high-risk merchant services, but qualified ISOs can simplify the process of obtaining a high-risk merchant account.

What Constitutes High Risk?

Coupled with the two main issues pointed out earlier, the following are generally flagged as high-risk:

  • Expensive transactions
  • Regulatory uncertainty
  • Reputational risk
  • Subscription-based services
  • Your business has a history of high chargeback ratios
  • The industry you operate in has high chargeback ratios
  • Card-not-present transactions, including e-commerce
  • International merchants
  • Countries that have a high chargeback risk (Brazil, Mexico and Russia have been shown to have a high chargeback risk.)
  • Use of multiple currencies
  • Your business has little to no credit card processing history
  • Your credit card processing history is poor
  • Your business has been placed on the MATCH list or is a terminated merchant

How Do I Know if I Need a High-Risk Merchant Account?

Operating as a high-risk merchant carries with it significant drawbacks, but the nature of some verticals mean that every business operating in that industry is considered high-risk. Some examples are adult content providers, cannabis, gambling and pawn shops.

ISOs and processors specializing in high-risk merchants are willing to accept the increased risk that comes with these industries and merchant types. ISOs with high-risk specialty help manage the relationship with the payment processor, navigating any issues that arise due to high chargebacks or fraud.

How Do I Get Approved for a High-Risk Merchant Account?

High-risk merchants can do the following to improve their odds:

  • Partner with a merchant services provider that specializes in high-risk merchant accounts. They know the ins and outs of navigating the industry as a high-risk merchant and can help you put your best foot forward.
  • Highlight the best features of your business. If you have previous processing history, banks will review this first. Once an individual merchant is reviewed further, a high-risk model may be deemed low risk. The primary factor is a previous processing history showing low chargeback ratios.
  • Write a business plan with information about the individuals involved, their experience, what industry, your plan for generating sales, how you will address market challenges, what sets you apart, and anything else that casts your business in a good light.

Why are Certain MCC Codes High Risk?

Certain MCC codes are designated as high-risk due to their history of higher fraud rates and chargeback ratios. These industries and billing models are categorized as high-risk by default.

4722, Travel Agencies and Tour Operators
Travel arrangements, tours, charters

4812, Telecom Sales and Equipment
Telecommunication devices

4814, Telecom Services
Telecommunication services

4816, Computer Network Services
Internet service providers

4829, Wire Transfers and Money Orders

5122, Drugs, Proprietaries & Sundries

5912, Drug Stores and Pharmacies

5962, Direct Marketing – Travel
Includes discount clubs

5964, Direct Marketing – Catalog
Mail and telephone orders

5966, Direct Marketing – Outbound
Mail and telephone orders

5967, Direct Marketing – Inbound
Telesevices, audio & videotext

5968, Direct Marketing – Subscription
Recurring subscriptions

5969, Direct Marketing – Other
Radio and TV sales

5993, Cigars, Tobacco

7021, Timeshares
Rentals, leases and sales

7273, Adult Dating and Escort
Various dating services

7841, Video Tape Rental Stores
Adult content

7922, Ticketing Agencies
Secondary ticketing

7994, Video Games and Arcades

7995, Betting and Casino Gambling
Online casino, lottery, wagers

9399, Government Services, State Lottery

Should I use a Payment Service Provider?

If you're high-risk, you probably can't.

PayPal and Stripe are some of the most-used PSPs examples and, although expeditious, tend to be favorable only to those deemed low-risk.

A Payment Service Provider (PSP) may seem like an easy option when you want to start accepting online payments without establishing your own merchant account. However, PSPs aggregate transactions from tens, hundreds, or even thousands of different merchants under a single account. Because of this, you will be held to collective responsibility; the misdoings of another merchant can affect all the merchants under that account. Too many chargebacks for one merchant may cause their transactions to be declined, but your transactions to also be declined if you share a MID.

In Conclusion

Having a high-risk designation means your business will be best served by merchant service providers who specialize in high-risk. The right partnership will allow you to continue to conduct business and stay in good standing with your merchant bank once an account has been acquired.

If your business is in a high-risk industry, if your billing or business models are historically high-risk, or if you've already been placed on the MATCH list or TMF, you should be looking at merchant service providers who can guide you to the right merchant bank with a strong application package. High-risk merchant service providers will also be able to help you mitigate risk and monitor any activity that could be flagged on your account. Find out more about high-risk merchant service providers on our high-risk merchant service providers page.