How to Know if You Are a High-Risk Merchant

High risk merchant woman shopping

High-Risk Merchant Services

Start with a company you can trust. First Financial Merchant Services.


Does your business run off a subscription-based model? Do you take in a large influx of expensive transactions? You might be classified as a high-risk merchant.

Being a high-risk business isn’t the end of the world, but it will make it more difficult to find payment processing options. This is especially true if you have a low personal credit score. Many account providers will turn you down due to fear of chargebacks and other negative reproductions.

Your business model is only one factor that will deter account providers. Check out this guide to learn for sure if you’re running a high-risk business.

What Is a High-Risk Merchant?

A high-risk business is one that credit card processing services and financial institutions deem likely to fail. While any company in any industry can be labeled as high risk, certain ones carry a more notorious reputation than others.

A high-risk business can still be successful, but it won’t have as many payment processing options as others. High-risk merchant account service providers charge these companies a lot more.

They have to meet stricter compliance requirements. Since these companies pose a higher risk for financial providers, they may have to put a portion of their profits into a rolling reserve.

Common High-Risk Industries

While the gambling and adult entertainment industries hold the highest record for being high-risk, there are others.

Most of these companies process expensive or high-volume transactions that are liable to chargebacks.

In the case of subscription boxes and gyms, people often cancel their memberships during times of economic uncertainty.

How to Tell If You’re Running a High-Risk Business

So, how do you tell if you have a high-risk merchant account? Again, the determining factor usually lies with your industry, but it’s not the only thing financial institutions consider.

They also look at your chargeback rate, personal credit score, transactions, sales model, and operations.

Chargeback Rates

One of the most common reasons why banks will label a company as a high-risk business is its chargeback rate.

Loan providers and payment processing services will determine if your company has a high chargeback rate by analyzing the behavior of your usual customers. If your employees spend most of their workday processing returns, there’s a good chance that you’re running a high-risk business.

The best way to reduce your chargeback rate is by implementing a strict return policy. This will make customers second guess investing in a product they either can’t or shouldn’t afford.

Questionable Products

Again, you may be considered high risk due to your industry. If you sell adult entertainment or drug paraphilia, some lenders may refuse to work with you for guilt by association.

Since the public perception of businesses of your nature is negative, lenders may not want to be seen supporting you.

International Operations in the US

If your company is located overseas, but you sell to customers in the US, there’s a good chance that you’ve been flagged as high risk. This is especially true if your country is notorious for credit card fraud.

Lenders will also look at the banking regulations in your country. If they’re relatively relaxed, that will be reason enough to consider you high risk.

Sales Model

There are some businesses that have questionable sales models. The ones that most people are wary of are MLMs. Half of them are a scam and the other half are questionable at best.

Even if your MLM is 100% legit, credit card processing companies may be hesitant to work with you.

Low Personal Credit Score

Before you open a business, you’ll need to work on your credit score. Having good credit will increase the chances of you getting approved for a loan that will help you get your startup off the ground.

You’ll also be less likely to get flagged as a high-risk merchant account. Business owners with low credit scores are thought to be irresponsible with their money. Payment processing services will assume they handle their business finances with the same care that they handle their own.

Large Transactions

Furniture stores, travel companies, and electronics stores all have one thing in common. They process expensive transactions every day.

After buying a new gaming console or couch, buyer’s remorse may set in. The customer will realize that they shouldn’t have bought the new item and return it. Too many chargebacks will result in the company getting flagged as a high-risk business.

Large doesn’t only mean expensive. Companies that process a high volume of transactions every day can also be considered high risk.

Subscription Businesses

Subscription businesses are their own special category. They’re almost always seen as high-risk.

Let’s say that you offer a month-long free trial. Chances are a large number of customers will forget to cancel their free trial, resulting in chargebacks and account suspensions.

Being a High-Risk Merchant Isn’t the End

Being considered a high-risk merchant can feel scary, but it isn’t the end of the world. While you won’t have as many payment processing and loan options, you’ll still have some.

We at First Financial believe that all merchants should have the chance for success. That’s why we approve almost 95% of all businesses, even those that are considered to be high-risk.

We offer plenty of secure online processing and debit card payment options. Go here to fill out a merchant services request form.

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