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

Businesses which can be characterized as “high-risk” will be needing a high-risk merchant account to simply accept debit and charge card payments. A high-risk business is one that has a better likelihood of chargebacks or fraud (and certain other characteristics as well).

However, there is 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 do not serve certain industries. Others will typically seek detailed details about a business to ascertain risk—depending where their application might be accepted or rejected. Ultimately, all of it boils right 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 might be automatically flagged as high-risk businesses. Here really are a few samples 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 might result in labeling a business as “high-risk”:

Some processors could label you as “high-risk” if you are a fresh entrant and haven't 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 might increase your risk perception as well.
Exactly the same goes for businesses that have controversial products or operate on a slippery legal slope.
Businesses which can be overly influenced by international sales might also have high-risk scores. This really is because of the relatively unpredictable economic dynamics abroad.
Industries which are highly regulated by legislation or governments will also be labeled “high-risk.”
How Do High-risk Accounts Change from Regular Accounts for Payment Processors?
Being labeled as a high-risk business can be seemingly 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 several 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, a merchant services provider may request very detailed information to analyze your risk profile or study past patterns of one's finances. Typically payment processing companies will check your company'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 will go up to 1.5% as well as the interchange rate. While interchange fees can vary from company to company, generally, higher risk will incur higher fees.