Imagine you are doing your business, a customer comes into your shop and makes a payment online with their card.
So, to accept this payment, you will need a high-risk merchant account—a special type of bank account that allows your business to process customer cards.
The reason why I am saying that you need a high-risk merchant account is that not everything goes smoothly.
You won’t believe that banks and payment processors don’t treat every business the same.
Some businesses are seen as “ high risk” because there is a greater chance of payment failure or a chargeback by a customer. Reasons can be the nature of businesses, fraud, and legality.
So if your business falls into that category, you need a high-risk merchant account.
In this guide, I will explain this in detail, and at the end of the article, you won’t need to read other articles to gain further understanding.
What is a high-risk merchant account?
A high-risk pay merchant account is a payment processing account with banks and credit card companies that accepts businesses with high risks. Such accounts are created under special regulations and fees to protect the bank against possible loss.
Example:
When you are selling CBD products online, you are indeed in a legally sensitive business. Banks may be concerned with even obeying all the laws:
- Laws in other states or nations.
- More customer disputes.
- Scammers who can purchase goods with stolen cards.
In this example, your payment may not be accepted maybe in a normal bank. However, a merchant offering high-risk merchant accounts, such as High Risk Pay, will serve you, but at higher fees and protection guarantees.
Why might a business be considered a High risk?
Reasons attributed to businesses being high-risk include these factors. Let us take a closer look:
a) Industry Risk
Some industries inherently include more conflicts or legal issues:
- Adult entertainment – censorship, protection of privacy.
- Gambling or internet gaming-Likelihood of swindling, illegitimacy in certain places.
- CBD, hemp, vape: Complex legal status.
- Travel agencies & ticketing- a lot of cancellations and refunds.
- Subscription services – Customers can forget to cancel, and this may end up in disagreement.
- Credit repair and debt collection industries with tightly regulated.
b) High Chargeback Ratio
If more than 1% of your transactions come in under chargeback, then banks may consider you as risky
Example: There is a red flag when 2-3 customers raise disputes out of 100 sales.
c) Selling Internationally
The amount of sales outside your home country has increased:
- Exchange rate problems.
- Risk of possible fraud through stolen cards.
- Issues of legal compliance.
D) High-value products
If you sell expensive watches, electronics, or luxury goods, then the cost of a single good i high, which makes banks extra cautious.
e) New or unproven business
New businesses without a track record are riskier to banks, and it is very common for banks to think about whether you will take proper responsibility for accepting payments and not commit any fraud.
How a High-Risk Merchant Account Works?
A high-risk merchant account operates virtually in the same way as a normal merchant account- it enables your company to take payments from buyers with a debit or credit card or other online payment systems.
The biggest discrepancy is that since your company is an example of a high-risk business, additional controls and security measures are constructed into the system so that the payment provider and the bank are not harmed.
Steps:
Step 1: The Customer Buys an item
- Online Example: A customer goes to your company’s site, selects an item, and clicks on the Pay Now option.
- In Store Example: Customer swipes, taps, or inserts his or her card in your payment device.
This is the stage when the customer inputs card details, which are as follows:
- Card number
- Expiration date
- CVV (security code)
- Billing address
These details are encrypted (converted into a secure code) so hackers can’t steal them.
Step 2: The Payment gateway transmits the details to the Processor
A payment gateway is sort of a safe online tunnel between your bank and the card of your customer.
What happens here:
- The card details are sent to the payment processor (your merchant account provider or a partner bank).
- The processor determines whether this is a high-risk transaction, as in the case of:
- Does the card come from a different country than the shipping address?
- Does the value appear to be excessively huge for this kind of spend?
- Did the card commit fraud previously?
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Step 3: Checks- Fraud and Risk
Due to the nature of your account as being high-risk, the provider presents additional checks that low-risk merchants may not undergo.
Such checks may consist of:
- Address Verification Service (AVS) – Confirms the billing address matches the one on file with the bank.
- CVV Matching – Makes sure that the correct 3- or 4-digit security code is entered.
- Velocity Checks – identify a series of transactions made within a small interval of time with the use of the same card or IP.
- Blacklist Check- Checks against lists of stolen cards/fraudulent accounts.
When the transaction checks out, it proceeds. Otherwise, it can be sent to be reviewed manually or rejected immediately. Sometimes it may take 7-14 days for review; till then, they hold your payment.
Step 4: Authorisation Request
The processor sends the transaction details to the card network (Visa, Mastercard, American Express, etc.), which then forwards it to the customer’s bank (also called the issuing bank).
- The issuing bank has checks to the tune of:
- Is the customer well in balance, or is the credit limit?
- Is the deal dubious?
- Has the card been lost or stolen?
In case all things go well, then the bank replies with an approval code. In case of a problem, it sends a decline message.
Step 5: Transaction Authorisation
Once approved:
- The customer reserves the money in his account.
- You (the merchant) get a confirmation message so you can deliver the product or service.
Step 6: Settlement
At the end of the business day, your processor sends all approved transactions to the acquiring bank (your merchant account’s bank).
When you use a low-risk account, the money is transferred to your business bank account in 1-2days by the acquiring bank.
In a highly risky account, things are different:
- Slow withdrawals- Your money may be up to 5-14 days late.
- Rolling reserve – A percentage (5–10%) of each sale is held for 3–6 months to cover chargebacks or refunds.
Step:7 Handling Chargebacks
Chargeback management is a large thing when dealing with high-risk accounts.
Chargeback, what is it?
When a client challenges a fee with his or her bank claiming:
- They had no permission to do it.
- The product broke, or did not come.
- They fail to know the charge.
Affecting risky merchants:
- Every chargeback may bring a charge of between 20 to 100 dollars.
- Too many chargebacks (over 1% of transactions) can get your account frozen or closed.
Step 8: Auditing
Low-risk accounts are not closely monitored as opposed to high-risk accounts. The provider may:
- Check your chargeback ratio every month.
- Scream at drastic increases in sales.
- Hold payouts temporarily in case of a rise in the risk of fraud.
Now I will explain the pros and cons of a high-risk merchant account
Advantages of a High-Risk Merchant Account payment processor
1. Optimism to Receive Payments in Dangerous Businesses
The normal payment processor would decline your business application because you are in other businesses such as online games, adult businesses, CBD retailers or travel.
Nevertheless, in these sectors, merchant account providers specialise in high-risk.
This implies that you would be able to freely and safely accept credit/debit card payments, although your company is more exposed to chargebacks or disputes.
2. GPP / Global Payment Processing
Most of these risky processors allow you to receive payments made by customers all over the globe.
This will be very helpful when you do intend to sell your products or services to other nations and you are in need to enlarge your customer base without being concerned about the limitations of the local banks.
3. Greater Chargeback Management
High-risk processors usually facilitate monitoring gaming, fraudulent transactions, as well as resolving disputes, and avoiding unwarranted excessive chargebacks.
They could also alert you to suspicious activities that could cause problems, hence you can take steps to solve the problem before it expands.
4. Various Paye Processes
High-risk merchant accounts normally accommodate various payment channels-credit cards, debit cards, ACH payments, and occasionally even cryptocurrency.
Such flexibility assists you in serving more customers and making better sales.
Cons of High-Risk Merchant Account Payment Processor
1. Higher Processing Fees
Common problem of overcharging, as high-risk merchant accounts tend to overcharge, as opposed to standard accounts.
As an example, a normal merchant account may set up a rate of 2-3 per cent on each transaction, and a high-risk account may levy 4-6 per cent or more.
2. Rolling Reserve Requirement
Some providers hold back a percentage of your sales revenue (usually 5–10%) for a certain period (often 3–6 months).
It is referred to as rolling reserve and is supposed to compensate for future chargebacks or refunds. It may have an impact on your cash flow, particularly where the business requires fast access to cash.
3. Extended Payout Periods
You may be forced to wait up to 30 days or even more to get your money, instead of the 12 business days enjoyed by low-risk merchants. Other providers pay as much as once a week or twice a week.
4. Tough Contract Conditions
High-risk payment processors tend to tie you into long-term contracts with a high early termination fee. Switching to other providers before the contract ends can prove to be costly.
5. Reputation and Trust Problems
Other providers of high-risk merchant accounts are sometimes aggressive in their terms and/or hidden fees, or have unresponsive customer service.
Failure to select the provider carefully might give you one that is not transparent in terms of charges or policies.
How to choose a payment gateway provider?
Selecting the ideal provider of payment gateway services is one of the most significant decisions any corporation can make, perhaps more importantly to a high-risk business. T
The technology that allows customers to securely pay you via your website or point-of-sale system and connects to the bank is known as a payment gateway.
Make a wrong choice, and you may end up with an issue such as late settlements, hefty transaction charges, or even account closure.
Factors you must consider: Here is a step-by-step subdivision of them:
1. Learn Your Business Requirements
Before you even consider payment gateway providers, you must know:
- Your kind of products or services.
- Whether your business is high-risk (e.g., travel, gambling, adult services, CBD, etc.).
- How do you plan to accept payments (online, in-store, or both).
- The regions or countries that you will sell to.
Diversifying gateways is stronger at different things. For example:
- When you want to sell across borders, you must have one that supports a multi-currency payment gateway.
- And, in case you are selling high-risk items, your gateway must be compatible with high-risk merchant accounts.
2. High-Risk Compatibility Check High-Risk Compatibility
Every payment gateway does not support high-risk businesses. Many mainstream providers (like PayPal or Stripe) might freeze your account if they later find out your business is high-risk.
Find a gateway provider that:
- Wholes Unlimited focuses on high-risk ventures.
- Has worked with ratios of chargebacks that are higher.
- Deals with banks that take high-risk merchant accounts.
3. Security and Compliance
Your undisputed priority should be security. A payment gateway should:
- Be PCI DSS compliant (Payment Card Industry Data Security Standard).
- Provide anti-fraud solutions to avoid chargebacks.
- Try to encrypt sensitive information, including payment data, via the use of SSL.
Without this step, you put customer trust and credibility of your own business at risk.
4. Approved Payments
There is a variety of preferences among customers as to payment. Your gateway must support:
- Credit cards (Visa, Mastercard, American Express, etc.)
- Debit cards
- Digital wallets (Apple Pay, Google Pay, PayPal)
- Alternative payments (cryptocurrency, bank transfers, buy-now-pay-later services)
The more you offer, the fewer sales you lose.
5. Pricing and Transaction Fees
Various providers differ in their price models. The most common charges are:
- Setup fee- paying a one-time fee to do your resetting
- Monthly, the fixed amount is used to use the service.
- Transaction fee – A percentage of each sale + a fixed amount (e.g., 2.9% + $0.30 per transaction).
- A chargeback fee is assessed when a customer challenges a payment.
High-risk merchants have to pay more fees, and in this case, it is essential that you compare providers to obtain the most advantageous offer, and at the same time, not compromise on service quality.
6. Settlement Period
The settlement period can be referred to as the delay between the time the customer pays a payment and the time the money goes into your account.
- Businesses that are low risk could receive money within 1-2 days.
- High-risk merchants might have longer settlement times (e.g., 7–14 days) to protect the bank from fraud.
You should select a gateway that has a reasonable settlement time for your cash flow needs.
For more clearer understanding, I will highlight the points through a table presentation where you can understand the key differences between low-risk and high-risk merchant accounts
| Features | Low-Risk Merchant account | High-Risk Merchant account |
| Good for | Stable business with low chance of fraud and disputes | Businesses with a high chance of risk (businesses include adult, new e-commerce businesses or travel agencies |
| Chargeback ratio | Usually below 1% | Often above 1% |
| Contract term | Short-term or fixed | Long-term with strict cancellation policies |
| Approval time | Fast approvals(1-3) days | Slower approvals(7-14) days due to high risk tendency |
| Bank support | More banks are willing to support | Limited banks are willing to support |
| Industry restrictions | Less restriction | Many restrictions, and it takes time to check |
| Chargeback handling | Very easy and fast solution | Strict policies sometimes require facing penalties |
| Rolling reserve | Rarely required | Frequently required (funds are held for a specific time) |
| Business Reputation requirement | Not highly checked | Requires proof of legality and a licence |
FAQs
Explain what is meant by rolling reserve?
A rolling reserve is when a payment gateway holds a percentage of your sales (e.g., 5–10%) for a set period to cover possible refunds or disputes.
Is it possible to transfer a high-risk account to a low-risk risk?
Yes, when you change your business model, when your chargeback ratio remains low, and when you are in a less risky industry, you may ask your payment provider to reclassify you.
What is the most suited payment gateway for small-scale businesses?
Stripe, Razorpay, PayPal, and PayU are all popular in low-risk small businesses. In case of high-risk businesses, they can better use specialised providers such as PaymentCloud or Durango Merchant Services.
What is the value of the protection against fraud in a payment gateway?
Very important. Fraud may still occur even though you are of low risk. Fraud-detecting gateways, 3D Secure authentication, and chargeback warnings are what to seek.
Conclusion
In conclusion, a high-risk merchant account charges a high amount of fees, and a rolling reserve is there every time, which may disturb the cash flow of the business.
But, for example, if you own an e-commerce store and sell fragile items, then there is a possibility that the product can be broken when it reaches the customer.
If a customer makes an online payment and there is a possibility that many of your customers have faced that situation, it is obvious they will return to that and file a complaint.
So in that situation, if you’re using a low-risk merchant account, then your account will be stopped. So in this scenario, a high-risk merchant account comes into the picture.
