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

Businesses which can be characterized as “high-risk” will require a high-risk merchant account to accept debit and charge card payments. A high-risk business is one that has a greater 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 set of standards.

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

What Factors Determine In case a Merchant Is High-risk?
Businesses from certain industries that innately carry higher risks might be automatically flagged as high-risk businesses. Here are a few examples 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 could bring about labeling a small business as “high-risk”:

Some processors could label you as “high-risk” if you should be a brand new entrant and haven't 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 increase your risk perception as well.
Exactly the same goes for businesses that have controversial product lines or operate on a smooth legal slope.
Businesses which are overly dependent on international sales can also have high-risk scores. This really is due to the relatively unpredictable economic dynamics abroad.
Industries which can be highly regulated by legislation or governments may also be labeled “high-risk.”
How Do High-risk Accounts Vary from Regular Accounts for Payment Processors?
Being called a high-risk business can be seemingly quite daunting. A model may simply decline your application. Alternatively, however, a payment processor might decide to offset your inherent business risk by enforcing some measures.

There are numerous ways in 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 in USA, a merchant services provider may ask for very detailed information to analyze your risk profile or study past patterns of one's finances. Typically payment processing companies will check your business'processing history, partnerships, and even your own personal credit history (to watch out for bad credit, etc.).

Higher payment processing fees
For standard small businesses, payment processing fees may be 0.3% above the rate of interchange. However, for a high-risk merchant account, this could go around 1.5% as well as the interchange rate. While interchange fees may vary from company to company, generally speaking, higher risk will incur higher fees.