In credit card processing, certain businesses are considered “high risk” and will need a processor that specifically supports those business types. But there’s some confusion about what exactly “high risk” means.
In this article, we’ll talk about industries that are considered high risk and how you can find the best high risk merchant account.
- What is a “high-risk” merchant account?
- Offshore Merchant Accounts
- High Risk Definition
- High-Risk MCCs
- Costs for High Risk Merchant Accounts
- Why do High Risk Merchant Accounts Have Higher Rates?
- How to Get a High-Risk Merchant Account
- Finding a High Risk Credit Card Processor
What is a “high-risk” merchant account?
A high-risk merchant account allows businesses to accept credit cards in industries that are considered high risk. High-risk industries aren’t necessarily dangerous or bad businesses. They can be businesses with higher than normal chargeback rates (such as travel agencies), businesses with age-restricted items (like tobacco sales) and other businesses that are perfectly legitimate and legal. Individual businesses can also be considered higher risk even if they aren’t in an overall high-risk industry.
If your business is considered high risk, try not to take it personally. It’s not a reflection on you, it’s an assessment made on trends regarding businesses with similar profiles to yours.
Offshore Merchant Accounts
While the names are sometimes used interchangeably, “offshore” and “high risk” merchant accounts are not necessarily the same thing. An offshore merchant account can be used for high-risk businesses, but not all high-risk merchant accounts are offshore.
An offshore merchant account is a processing account with an acquiring bank that is located in a different country than the business that holds the account. If your business is in the United States and the acquiring bank is not, that would be an offshore merchant account. In some cases, offshore merchant accounts have fewer restrictions, making them a good choice for very high risk businesses.
Believe it or not, there’s no single definition of high risk businesses in credit card processing. Visa, Mastercard, American Express, and Discover all have their own lists. Processors use those lists as a base and add additional industries according to their own risk requirements. That means that while all processors will include the card brands’ listed industries, any additional high-risk classifications beyond that are at the processor’s discretion and will vary from one processor to another.
Because of that, narrowing down exactly what business types processors consider high risk is a difficult task. A business that Visa may not consider high risk can still be classed as high risk by a processor. However, while there is variation, there are several industries that most processors will consider high risk. Those industries include:
- Travel services
- Adult entertainment
- Dating websites
- Tobacco and vape shops
- Debt collection and credit repair
- Bitcoin and digital currency exchanges
- Loan services
This is not a complete list of high-risk industries, and it does not mean that a traditional processor won’t be able to support your business.
However, if you’re operating in one of the industries above, you’ll save yourself some time and aggravation by looking for a processor that can explicitly support your business type. Keep in mind that processors can choose to support or not support particular businesses at their discretion.
Other High Risk Designations
Not all high-risk businesses are considered high risk because of their industry. In addition to particular industries, individual businesses may be considered high risk for factors including: poor personal credit; inclusion on the Terminated Merchant File (TMF or MATCH list) for processing misconduct, non-payment, or fraud; high dollar value transactions with no business history; high dollar custom products; large number of international transactions.
Terminated Merchant File
Businesses that are placed in the Terminated Merchant File (TMF), also sometimes called the MATCH list, will also be considered high risk. There are several reasons that you may end up on the MATCH list, including obvious reasons like engaging in fraud or credit card laundering as well as less obvious things like continuing to bill customers that have cancelled subscriptions.
Chargebacks911 indicates the businesses on the MATCH list stay there for 5 years. Additionally, all processors have access to the list, and can make decisions to not extend a merchant account to a business on the list. There are some high-risk processors that will still offer accounts to businesses on the TMF, but as a general rule, it’s a good idea to try to get off the MATCH list before attempting to secure another merchant account.
You can contact the company that put you on the MATCH list to attempt to resolve the issue.
High Risk MCCs
When you open a merchant account, you’ll be assigned a merchant category code (MCC) classifying your business. Many businesses ask if there’s a list of high risk MCCs. While there’s no single conclusive list, high risk processors will each maintain their own list of businesses that they deem to be high risk. When considering processors, you can ask directly if they can support your business type before filling out an application. It’s not necessary to know your current (or expected) MCC before opening a merchant account; your processor will assign it to you.
That said, Visa and Mastercard both publish lists of MCCs that they class as high risk. American Express and Discover do not publish lists, but offer other information.
Subject to change, Visa outlines high risk MCCs in its Rules, as follows:
- 5962 (Direct Marketing – Travel-Related Arrangement Services)
- 5966 (Direct Marketing – Outbound Telemarketing Merchants)
- 5967 (Direct Marketing – Inbound Telemarketing Merchants)
- 7995 (Betting, including Lottery Tickets, Casino Gaming Chips, Off-Track Betting, and Wagers at Race Tracks)
- 5912 (Drug Stores, Pharmacies)
- 5122 (Drugs, Drug Proprietaries, Druggist Sundries)
- 5993 (Cigar Stores and Stands – for merchants that sell cigarettes in a card-absent environment)
Visa requires registration for the high-risk MCCs noted above. Your processor will need to register you as a high-risk business before you can accept Visa cards. Visa charges the processor for registration, but the processor will pass that cost on to you.
Visa registration costs $500 upfront and $500 to renew each year.
Registration doesn’t apply to MCC 5993. It may also not apply to 5912 and 5122 if your business is accredited by the National Association of Boards of Pharmacy or another Visa-recognized legal regulatory body.
Note that Visa does not require registration (and the associated fees) if you run a high-risk business that is deemed high-risk by your processor but is not on Visa’s list.
Mastercard doesn’t publish a readily-available list of MCCs that it deems high risk. However, high risk processor CCBill’s website specifies that Mastercard considers high risk to include “downloadable, digital merchandise” sales, as well as MCCs:
- 5967 (Direct Marketing – Inbound Telemarketing Merchants)
- 7841 (Adult Video Stores)
- 7994 (Video Games and Arcades)
- 7995 (Gambling)
As with Visa, this is not an exhaustive list of all Mastercard high risk businesses. According to CCBill, Mastercard’s registration fees are the same as Visa’s – $500 upfront and $500 per year to renew.
American Express and Discover
Unfortunately, American Express and Discover are less forthcoming about their high-risk classifications.
American Express High Risk
While American Express doesn’t publish a list of MCCs, high risk payment specialist PaymentCloud tells CardFellow that Amex will allow some high risk business types, but prohibits adult entertainment and services, document prep, and collections agencies.
American Express lists prohibit uses of its card in its U.S. Merchant Reference Guide. A section on prohibited merchants states that Amex can deny or revoke processing privileges for businesses that are performing prohibited activities. Presumably, this includes accepting cards in the scenarios described in the ‘prohibited use of cards’ section.
Some of Amex’s prohibited card uses affect industries typically considered high risk. Examples include:
- Digital adult content delivered online
- Repayment of loans, including payday loans and pawn loans
- Purchases of gold, silver, and other “cash equivalents” (does not include jewelry)
- Gambling, including online gambling, lottery tickets, and chip purchases
If you operate in one of these industries, you’ll need to look at Visa or Mastercard acceptance since Amex explicitly prohibits its cards to be used for such purchases.
Discover High Risk
Discover provides even less information than Amex. PaymentCloud confirmed to CardFellow that Discover prohibits tech support, credit repair, and collections.
In its Merchant Operating Regulations, Discover mentions that certain MCCs are prohibited from utilizing recurring billing. Those MCCs include:
- 4829 (Money Transfer – Merchant)
- 5933 (Pawn Shops)
- 6211 (Security Brokers/Dealers)
- 9223 (Bail Bonds and Payments)
If you plan to take Discover, you’ll need to work with a high risk processor to ensure you’re meeting the company’s requirements for accepting cards in an approved manner.
Costs for High Risk Merchant Accounts
High risk merchant accounts come with higher fees than traditional merchant accounts. Your specific business type, registration with card brands (if applicable), and other factors all affect your final costs.
If you choose to take both Visa and Mastercard and have an MCC that requires card brand registration, you’ll pay $1,000 per year for registration with the two companies. That registration fee is not in your processor’s control, and is in addition to the per-transaction rates and fees.
Processors will set pricing and terms on a case-by-case business, reviewing the details of your individual needs. It’s a good idea to get quotes from multiple processing companies to compare costs before making a decision.
Why do high risk merchant accounts have higher rates?
Processors that support high risk businesses charge higher rates for several reasons. A big one is that there’s a greater chance they’ll lose money. Even if a business is held liable for chargebacks, it can cost a processor time and money to pursue that business for the costs associated with chargebacks, especially if the processor has to get courts involved.
Another reason is that processors are required to do more administrative work for high-risk businesses, and that takes staff time. For example, Visa’s rules regarding high-risk require that a US-based acquirer must generate “unusual activity reports” every day and report any unusual activity to Visa within 2 business days. A processor will need to run reports to determine if a business needs to be referred to Visa for review.
Visa’s criteria for reporting states that if a business must be reported to Visa if it has weekly gross sales volume of $5,000 or more and any of the following criteria exceed 150% of the usual daily activity:
- Number of daily transaction receipt deposits
- Gross amount of daily deposits
- Average transaction amount
- Number of daily disputes
Visa must also be informed if the average time between the date of the transaction and the processing date of the transaction is more than 15 calendar days.
Acquirers must collect and retain data for the first month of processing in order to establish a normal daily value for each criterion, and then begin daily monitoring. At least once a month, the acquirer must update the normal daily value using the previous month’s data.
As you can see, there are a lot of requirements behind the scenes for your processor, and that’s just for one card brand. It takes employee time to comply with the requirements.
How to Get a High-Risk Merchant Account
Securing a processor for a high-risk business may take a little longer. The companies that offer immediate set up, like Square and PayPal, explicitly prohibit most types of high risk businesses. So while you may initially succeed at signing up, they will likely catch on down the road and terminate your account due to the violation of terms, leaving you in a bind.
Dedicated high risk merchant account with instant approval aren’t readily available due to the extra steps involved in the underwriting process. As noted above, in some cases, your processor will need to register you with the credit card brands before you can accept those cards. Even though it seems like a pain, it’s better to take a little extra time to find a processor who can work with you than to sign up quickly and one day find yourself with no way to process sales.
When looking to secure a merchant account:
It may be tempting to fudge the details a bit so that you appear to be a different type of business. However, it’s never a good idea to do that, as processors often catch on and will terminate your account. Don’t misrepresent your business. If you’re a firearms dealer, don’t claim to be a general retail store. Remember, as long as your business is legal, there’s a processor out there who can support it.
That said, just because there are processors for all legal business types doesn’t mean that you won’t be subject to restrictions. It’s common for high-risk processors to impose what’s called a rolling reserve. With a rolling reserve, the processor will hold a percentage of your sales. The processor will disclose the percentage and the length of the hold to you prior to the account set up.
For example, high-risk processor CCBill lists rolling reserves of 5% with time periods varying from 6 weeks to 26 weeks.
Read more about Rolling Reserves.
If your business isn’t subject to a rolling reserve, you may still have the less-strict requirement of an ACH delay, or a delay on funds reaching your account. With an ACH delay, the processor will hold on to the funds from your transactions for a few days.
While restrictions aren’t ideal, they’re often the compromise that allows a processor to feel comfortable providing you with a merchant account. If you keep your account in good standing and work to limit your chargebacks, you may be able to ease restrictions over time.
Finding a High Risk Credit Card Processor
Fortunately, processors that offer high-risk merchant accounts will typically market themselves as such. Even businesses that have been turned down for high risk accounts with one processor can often still secure an account with another processor.
You can browse CardFellow’s credit card processor directory to locate processors that specifically serve high risk businesses.
Who do you use for high risk processing? Let us know in the comments!