Credit Card Processing for High Risk Merchants

A high-risk merchant account is a type of business account deemed higher risk by financial institutions. When a merchant falls into this category and wants to accept credit cards, they must get approved for a high-risk merchant account.

As a business owner, it may be frustrating or even confusing to find your business is labeled “high risk.” Frustrating because it can limit your options for payment processing, take longer to get approved, and increase costs. Confusing because you’re selling reputable products or services that follow all laws and regulations.

That’s why knowing how risk is determined is vital to your business.

While each payment provider can have its criteria and processes for handling high-risk merchants (if they do at all), here are a few of the most common things to expect:

• Higher fees: High-risk merchants are more susceptible to fraud, chargebacks, and financial failure, which increases payment processing fees and can lead to higher chargeback fees depending on the processor.

• Complicated application process: Because of the added risk, the underwriting and approval process takes much longer and requires more information than a standard merchant account application.

• Volume caps: Your business may have restrictions on the amount of transactions or dollar amount your business can process each month (depending on your provider).

• Cash reserve requirements:

  • Capped reserve: A percentage of each transaction is withheld until your account reaches a prespecified amount.

  • Rolling reserve: A reserve based on a specific timeframe. The most common time is six months to a year. After the designated time, the processor releases the funds.

  • Upfront reserves: An upfront deposit that's used as a reserve and determined by your processor.

Any business that wants to accept credit cards or debit cards is assigned a four-digit merchant category code (MCC) that matches its primary line of business. It’s also common for a merchant to have multiple MCCs for different products or services it sells.

Think of it like this:

MCCs are essentially your business’s DNA. They are like unique genetic codes used to identify businesses within a specific industry. Your business inherits an industry’s genetic code based on the products or services you offer, similarly to how a child inherits DNA from their parents.

Merchant category codes: cause and effect

Your business’s MCC plays a pivotal role in your payment processing costs. Not only that, it affects your ability to secure certain merchant services. Regulators and government entities also use MCCs to monitor transactions in specific regions or states where certain services or products are illegal or prohibited.

Who determines if a business is high risk?

The main governing authority is the International Organization for Standardization (ISO)—not to be confused with independent sales organizations. However, individual card brands often consolidate or adapt MCCs for their own purposes. Payment processors assign merchant category codes based on these governing entities.

As a merchant, you want to make sure that the MCC assigned to your business is accurate. You may also need multiple MCCs if you sell more than one type of product or service.

The following industries are the most common types of high-risk businesses. Some industries have multiple MCCs for different products or services within the same industry, so make sure your business is using the correct ones.

• Adult entertainment

• CBD and hemp products

• Credit repair

• Cryptocurrency

• Extended warranties

• Firearms and ammunition

• Gaming and gambling

• Healthcare

• Lending and money services businesses (MSBs)

• Liquor and hard alcohol

• Pharmaceuticals, supplements, nutraceuticals, and beauty products

• Subscription services

• Telemarketing and direct marketing

• Ticket brokers

• Tobacco and vaping products

• Travel agencies and booking services

Businesses in these industries face challenges like higher processing fees, cash reserves, volume caps, difficulties getting approved, and more stringent contract terms. High-risk merchant processors can help mitigate many of these challenges—which leads us to the next point of discussion.

Higher fees and interchange rates come with the territory for high-risk businesses, but there are ways to offset costs, optimize revenue, and make your business operations more efficient.

1. Partnering with the right provider: The most impactful decision you can make as a high-risk merchant is choosing the right payment provider. Processors that support higher-risk businesses are better equipped to understand the nuances of your business and can offer more tailored solutions.

2. Reducing or eliminating the middleman in payments: There are several hidden layers in the payment stack, which add to your costs—on top of higher rates attributed to higher-risk businesses. Getting as close to the payment processor as possible will help reduce your overall processing costs and lead to better support.

3. Getting the support you need: A common complaint among merchants is the poor customer service they get from their payment providers. A fast and knowledgeable support team is important for every type of business, but even more so for those that fall in the high-risk category.

4. Utilizing fraud detection and prevention tools: Having advanced fraud tools to detect and prevent fraudulent transactions is key to minimizing chargebacks while ensuring legitimate purchases still go through.

5. Staying in compliance: Regularly review and update your security measures to ensure they comply with industry standards and the Payment Card Industry Data Security Standard (PCI-DSS).

6. Optimizing your payment methods: Offering a variety of payment options, such as credit cards, debit cards, and digital wallets will allow you to cater to a broader range of customers and potentially capture more sales.

7. Monitoring your business with data and analytics: Use data to get insights into your transaction fees and chargeback ratios, understand customer behavior and payment trends, and build strategies to maximize revenue and customer experiences.

8. Tracking disputes: A provider that has built-in dispute management is crucial to high-risk businesses. With Finix, you’re able to manage disputes end-to-end, including concessions or uploading evidence to fight chargebacks.

Another hurdle high-risk businesses face is moving through the application process and getting approved for a merchant account. Luckily, there are a few things you can do to help make the process a little smoother and improve your chances of getting approved.

• Demonstrating a strong payment processing history on a different processor or from a different business

• Having all the necessary documents for underwriting, such as personal and business identification information, tax records, business operation model, and processing history (if applicable).

• Ensuring your website and network are secure and compliant

• Maintaining a good online reputation

• CBD and hemp

• Nutraceuticals and supplements

• Gaming and online gambling

• Lending and money services businesses

• Digital wallets

Your business can expect the same fast and reliable payment processing and dedicated support we provide to all of our customers. You’ll also have access to easy no- and low-code payment tools and analytics, along with built-in intelligent fraud detection, embedded compliance, and support for all major credit and debit cards and mobile wallets.