Businesses Considered High-Risk And Its Implications

Dec 02, 2021

The financial industry is teeming with risk. There is theft, fraud, and defaulted loans. Companies struggle to mitigate risk in order to keep more of their profits. 

There are certain industries where there are higher incidences of both fraud and chargebacks. These industries are categorized as “high-risk”. When it comes to payment processing, being labeled as a “high-risk” business does carry its own implications.

What Makes A Business High-Risk?

Ultimately, the “high-risk” designation will be given by the provider. Many providers differ as to what they consider to be a high-risk industry. The criteria for being labeled high-risk has to do with the potential for their transactions to be either disputed or reversed. In addition, the industry would have to be one where it has demonstrated a history of higher-than normal rates of fraud and customer disputes. 

Then there are the high incidences of chargebacks. Typically, a provider requires businesses to stay below 1%. Any merchant that surpasses this amount will be subjected to additional fees. Businesses can even have their accounts terminated. 

Which Industries Are Considered To Be High-Risk?

The main characteristics that will land a business under the high-risk category have to do with the processing history and the industry’s reputation. 

Other characteristics, depending on the payment processor’s guideline include the following:

  • Bad credit history and excessive chargebacks.
  • More than $20,000 monthly sales volume
  • Average credit card transaction is higher than $500
  • Selling products and services to countries known for high levels of fraud

As previously mentioned, which businesses are considered to be high-risk will largely depend on the provider. 

Here are some industries that typically fall under the high-risk category:

  • Adult entertainment
  • Recurring subscriptions
  • Luxury goods
  • Online gaming
  • Firearms
  • Tickets and reservations
  • Electronics
  • Pharmaceuticals and cannabis
  • Multi-level marketing

Implications For Being High-Risk

The harsh reality for high-risk merchants is that they will need to acquire a high-risk merchant account and with that comes higher-than-normal fees. Since risk is inherent in your business and providers do want to protect their interests, brace yourself to pay more for processing and account fees. 

There are some providers that will require you to pay a setup fee, a monthly and annual fee, and even a PCI fee. Make sure you read all the fine print on your contract to ensure that you are aware of all charges. 

Within some contracts, there are clauses where you will be required to pay an early termination fee, should you want to end your contract before it expires. Check to see that all of this information is clearly stated in your contract. 

Other expenses to be aware of on high-risk merchant accounts are rolling reserves. They serve as an extra layer of protection for the bank against chargebacks or fraud on your end. How it works is that 5%-10% of the credit card processed volume is secured, kept back for a defined period, up to 6 months. After this time, the reserve is then released. 

Chargeback fees are also something to be prepared for. These fees occur when a credit cardholder files for a chargeback, asking their bank to dispute the charge. These fees cover the administrative costs involved with processing the chargeback. 

Overall, all the fees associated with your high-risk merchant account may cost as much as twice as those paid by “low-risk merchants”.  If you happen to run a business where numerous transactions are processed daily, you can then negotiate with your provider for better rates. 

Final Words

Choosing the best high-risk merchant account provider is pivotal to your business success. Seek providers that have a demonstrated history working with high-risk businesses. Make certain that there is complete transparency on their fees, terms, and conditions. Finally, ensure you find a provider with the best, responsive support on the market. 

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.