What Is really a High-risk Merchant Account?

Businesses that are characterized as high-risk will be needing a high-risk merchant account to just accept debit and credit card payments. A high-risk business is one that's a larger likelihood of chargebacks or fraud (and certain other characteristics as well).

However, there's no central authority or framework in the payments industry that determines the danger factors of a business. Instead, every bank and every payment processor has its own set of standards.

Some payment solution providers may state upfront that they don't serve certain industries. Others will typically seek detailed information about a small business to ascertain riskdepending which their application might be accepted or rejected. Ultimately, all of it boils down to a payment processor's internal criteria and outlook towards risk management.

What Factors Determine If a Merchant Is High-risk?
Businesses from certain industries that innately carry higher risks might be automatically flagged as high-risk businesses. Here certainly are a few samples of high-risk industries:

CBD (Cannabidiol), e-cigarettes, and vape
Stun guns and tasers
Credit repair
Multilevel Marketing (MLM)
Adult products/services
Pawnshops
Supplements and nutraceuticals
Tech support
Search Engine Optimization (SEO) services
Besides this, there are numerous other factors that could lead to labeling a business as high-risk:

Some processors could label you as high-risk if you should be a brand new entrant and have never processed payments before.
Poor credit records or low credit scores for defaulting on loans, etc., are other significant factors. In case a processor has previously place you on the MATCH list, that may raise your risk perception as well.
Exactly the same goes for businesses that have controversial products or operate on a smooth legal slope.
Businesses which are overly dependent on international sales might also have high-risk scores. This really is due to the relatively unpredictable economic dynamics abroad.
Industries which are highly regulated by legislation or governments will also be labeled high-risk.
How Do High-risk Accounts Change from Regular Accounts for Payment Processors?
Being defined as a high-risk business can appear to be quite daunting. A processor may simply decline your application. Alternatively, however, a payment processor might choose to offset your inherent business risk by enforcing some measures.

There are numerous ways in which a payment processing company may mitigate its risk. These are also the prime differentiators between high-risk and regular merchant accounts.

Longer application process
If you're applying for a high risk merchant account providers in USA, a merchant services provider may ask for very detailed information to analyze your risk profile or study past patterns of your finances. Typically payment processing companies will check your organization'processing history, partnerships, and even your personal credit history (to be cautious about bad credit, etc.).

Higher payment processing fees
For standard small businesses, payment processing fees might be 0.3% above the rate of interchange. However, for a high-risk merchant account, this will go up to 1.5% as well as the interchange rate. While interchange fees can vary from company to company, in general, higher risk will incur higher fees.