High Risk Merchant Accounts
In credit card processing, certain businesses are considered “high-risk” and may need a special processor to provider a high risk merchant account. But there’s some confusion about what exactly “high-risk” means. In this article, we’ll talk about industries considered high risk and what you can do to find processing as a high-risk business.
- What is “high risk” in credit card processing?
- Industries Typically Considered High Risk
- Finding a High Risk Credit Card Processor
What is “high risk” in credit card processing?
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.
Industries Typically Considered High Risk
Narrowing down exactly what business types are considered high risk is a difficult task, but there are several industries that will typically be considered high risk by most processors. 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.
Finding a High Risk Credit Card Processor
Fortunately, processors that offer high-risk merchant accounts will typically market themselves as such. You can use CardFellow’s processor directory to search for high-risk processors and read profiles of companies like CCBill and PaymentCloud to find one that will suit your needs.
Be aware that it may take a little more time to secure a processor for a high-risk business. 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. 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 for a processor for a high-risk business, 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, where the processor will hold a percentage of your sales. The processor will disclose the percentage and the time of the hold to you prior to the account set up.
For example, 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.
You should also be prepared to pay higher fees as a high-risk business. Since there’s greater risk for the processor in taking you on as a client, they need to adjust for that by charging more.
Who do you use for high risk processing? Let us know in the comments!