Accepting payments online has become a must-have for any company. Online shopping has been growing at an exponential rate, and by 2025, international digital payments will have surpassed $9.5 trillion. However, banks and payment processors may not treat all firms fairly. A portion of all merchant apps are classified as “high-risk” owing to criteria such as industry, transaction behaviour, or geographic location, even in cases where no illegality has occurred. This group comprises around 15% of all applications.
This classification has a big impact on how these companies take payments, what kinds of fees they pay, and even how they run they businesses. Consider the following: high-risk merchants may be subject to processing costs that are 2-4% more than those of other companies, and they may also be required to hold a rolling reserve of 10% for 90-180 days in case of chargebacks or disputes.
A high-risk merchant account is defined, who needs one, what does it mean to be designated high-risk, and how can businesses overcome these challenges while growing and being compliant in a competitive market? All of this and more is covered in this complete guide.
What Is a High-Risk Merchant Account?
A high-risk merchant account is a type of payment processing account designed for businesses that are more likely to experience chargebacks, fraud, or regulatory scrutiny. These businesses often operate in sectors that have a history of financial instability, reputational concerns, or compliance complexities.
While they offer the same core function, allowing businesses to accept debit and credit card payments, high-risk accounts typically involve-
- Higher processing fees
- Rolling reserves (a percentage of revenue held temporarily)
- Longer settlement periods
- Additional documentation during onboarding
- Ongoing monitoring by payment providers (e.g. Mastercard)
Being labelled high-risk doesn’t necessarily mean a business is illegitimate. Often, it’s simply due to industry norms, location, or business model.
What Makes a Business High-Risk?
The criteria for being tagged high-risk vary across financial institutions and payment processors, but certain red flags are universally recognized.
#1. Industry Type
Some industries are inherently riskier due to high chargeback rates, friendly fraud concerns, or legal ambiguities. Common high-risk sectors include:
- Adult content and services
- Online gaming and gambling
- CBD and hemp products
- Subscription-based businesses
- Travel and ticketing platforms
- Cryptocurrency and forex trading
- Nutraceuticals and supplements
- Online tech support
These industries are often seen as volatile, controversial, or difficult to regulate, which makes payment providers cautious.
#2. High Chargeback Ratios
Chargebacks happen when customers dispute a transaction with their bank. If a business experiences chargebacks frequently, it’s flagged as a financial liability. A chargeback rate above 1% is often the tipping point.
#3. Recurring Billing Models
Businesses using subscription billing or free trial-to-paid conversions are viewed as risk-prone. Customers often forget they subscribed or claim they didn’t authorize the charges.
#4. Geographic Risks
Operating in countries with high fraud rates, weak consumer protection laws, or economic instability increases the risk perception for payment processors.
#5. High Average Transaction Size
Businesses that sell expensive goods (like electronics, luxury items, or travel packages) are more vulnerable to disputes and higher chargeback amounts.
#6. Startup or Poor Credit History
New businesses without a proven processing history or owners with poor credit may automatically be flagged as high-risk.
Key Features of High-Risk Merchant Accounts
To protect both the merchant and the payment provider, high-risk merchant accounts are listed below.
1. Rolling Reserves
A portion of your daily or weekly revenue (usually 5–10%) is held in reserve for a specified period (e.g., 90–180 days). This helps cover chargebacks or fraud-related losses.
2. Longer Settlement Periods
Funds might not be released as quickly. While low-risk merchants often receive settlements within 1–2 business days, high-risk merchants might wait 5–7 days or more.
3. Higher Processing Fees
Due to increased risk, providers charge higher transaction fees—often between 4% and 8%, compared to 1.5–3% for standard accounts.
4. Chargeback and Fraud Tools
To help reduce losses, high-risk accounts often include access to enhanced fraud filters, address verification (AVS), and real-time monitoring tools.
5. Ongoing Compliance Checks
Expect more paperwork. High-risk merchants may be asked to provide ongoing financial statements, bank details, and compliance certifications.
Challenges Faced by High-Risk Merchants
A high-risk classification is not only a technical classification; rather, it comes with repercussions that are applicable in reality.
- One of the most challenging aspects of onboarding is that many processors completely refuse applications from high-risk firms.
- Increased operating costs bring about a reduction in profit margins due to the increased fees and rolling reserves.
- If the provider determines that the risk is too great, they have the right to freeze or terminate the account, regardless of whether it has been approved.
- There are some online platforms that do not offer high-risk payment gateways, which significantly restricts the flexibility of your e-commerce business.
How to Improve Your Standing (Even as a High-Risk Business)
It’s possible that you won’t be able to change the industry you work in, but there are things you can do to reduce the perception of risk and make your business run better.
Maintain Low Chargebacks
- Make sure to use clear billing descriptions.
- Make your return and refund policy easily accessible.
- Deliver excellent service to your customers.
- Make use of instruments that identify fraud.
Keep Your Documentation Ready
Be sure to ensure that you have complete financial records, company licenses, fulfillment policies, and processing histories at your disposal. Developing trust with payment providers requires transparency.
Continue to Maintain Compliance
Observe the requirements of the industry as well as the laws that safeguard data. A high level of compliance can assist in minimizing risk concerns.
Engage in Conversations with Providers
With the goal of avoiding suspicion, it is important to proactively advise your provider of any changes in your company strategy, product offers, or transaction trends.
Tips for Choosing a High-Risk Payment Processor
If the official classification of your company as high-risk is accurate, then choosing the appropriate processor becomes very necessary. There are processors who specialize in high-risk businesses and offer individualized solutions, but you won’t be able to apply for a mainstream account there. The following is what you should look for-
- It is important to make sure that the supplier has experience in your industry and is familiar with the specifics of your company.
- Avoid hidden costs and long-term lock-in contracts by referring to transparent pricing.
- Choosing systems that provide actual warnings or mitigation tools is the best way to protect against chargebacks.
- Due to the fact that high-risk accounts are susceptible to volatility, it helps to have support available at all times.
- You can’t do business on an international level without support for multiple currencies.
High-Risk Merchant Account vs. Regular Account: A Quick Comparison
| Feature | High-Risk Merchant Account | Regular Merchant Account |
| Approval Time | Longer, with detailed checks | Quick, often instant |
| Transaction Fees | Higher (4–8%) | Lower (1.5–3%) |
| Rolling Reserves | Common | Rare |
| Settlement Period | Delayed (up to 7 days or more) | 1–2 days |
| Chargeback Tolerance | Low (1% max) | Slightly higher |
| Documentation Required | Extensive | Basic |
Why High-Risk Doesn’t Always Mean Bad Business
“High-risk merchant” is usually a bad thing, but in fact, it’s just a label for managing risks and has nothing to do with the business’s ethics, quality, or promise. There are a lot of high-risk, legal businesses that are also growing quickly. This is just how they work.
If you look at travel companies, subscription boxes, or sellers of digital goods, they tend to have more cancellations, late deliveries, and return requests, which makes payment processors nervous. Lots of these businesses are doing well, focusing on customers and coming up with new ideas.
Some of the businesses that are growing the fastest are actually considered high-risk. These include trading digital currencies, e-learning, and alternative health. These areas are growing very quickly, but they are high-risk because the business models are complicated or there aren’t clear rules about them.
Because of this, business owners need to change how they think about what “high-risk” really means-
- It is not an opinion; it is a compliance rating.
- It has to do with predictive risk models, not with people doing wrong.
- You can control it, minimize its effects, and even make it better.
Heavy-risk businesses can still get good processing options, low fees, and space to grow with the right partners, systems, and strategy. When you work with companies that focus on high-risk businesses, you may even get better fraud protection, custom features, and more personalized support.
Companies shouldn’t be afraid of the name; instead, they should try to figure out why it’s there and use that information to make better financial decisions that protect their income and image as they move forward.
Wrapping It Up
The fact that you run a high-risk company does not make you a poor entrepreneur; rather, it just indicates that you are operating in a sector that calls for more cyber monitoring, transparency, and protection responsibilities. When equipped with the appropriate tools and techniques, high-risk businesses have the potential for success just as much as low-risk enterprises.
If you are able to get an understanding of the complexities of high-risk merchant accounts, you will be able to make well-informed decisions, keep clear of unnecessary barriers, and concentrate on what is most important: expanding your business in a secure and sustainable manner.
