High-risk merchant account what it is and how it works

Businesses which are characterized as high-risk will require a high-risk merchant account to accept debit and charge card payments. A high-risk business is one that has a greater 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 risk factors associated with a business. Instead, every bank and every payment processor has a unique pair of standards.

Some payment solution providers may state upfront that they don't really serve certain industries. Others will typically seek detailed details about a company to ascertain riskdepending on 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 may be automatically flagged as high-risk businesses. Here are a few examples 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 bring about labeling a business as high-risk:

Some processors could label you as high-risk if you should be a fresh entrant and have not 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 put you on the MATCH list, that could increase your risk perception as well.
Exactly the same goes for businesses which have controversial products or operate on a smooth legal slope.
Businesses which can be overly influenced by international sales could also have high-risk scores. This is due to the relatively unpredictable economic dynamics abroad.
Industries which can be highly regulated by legislation or governments may also be labeled high-risk.
How Do High-risk Accounts Vary 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 many ways where a payment processing company may mitigate its risk. They're also the prime differentiators between high-risk and regular merchant accounts.

Longer application process
If you're applying for a high risk merchant account in USA, a merchant services provider may look for very detailed information to analyze your risk profile or study past patterns of your finances. Typically payment processing companies will check your company'processing history, partnerships, and even your own personal credit history (to watch out for 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 may go as much as 1.5% as well as the interchange rate. While interchange fees can vary greatly from company to company, in general, higher risk will incur higher fees.