What Is really a High-risk Merchant Account?

Businesses which can be characterized as high-risk will need a high-risk merchant account to simply accept debit and credit card payments. A high-risk business is one that's 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 its own set of standards.

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

What Factors Determine If your 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 types 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 lots of other factors that may 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. If your processor has previously put you on the MATCH list, that can raise your risk perception as well.
The same goes for businesses that have controversial products or operate on an elusive legal slope.
Businesses which can be overly dependent on international sales can also have high-risk scores. This really is due to the relatively unpredictable economic dynamics abroad.
Industries that are highly regulated by legislation or governments will also be labeled high-risk.
How Do High-risk Accounts Vary from Regular Accounts for Payment Processors?
Being labeled as a high-risk business can appear to be quite daunting. A processor may simply decline your application. Alternatively, however, a payment processor might decide to offset your inherent business risk by enforcing some measures.

There are many ways by which a payment processing company may mitigate its risk. They 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, 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 business'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 could go up to 1.5% plus the interchange rate. While interchange fees may vary from company to company, generally, higher risk will incur higher fees.