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

Businesses which can be characterized as “high-risk” will need a high-risk merchant account to just accept debit and charge card payments. A high-risk business is one that's 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 danger factors associated with a business. Instead, every bank and every payment processor has a unique pair of standards.

Some payment solution providers may state upfront that they don't really serve certain industries. Others will typically seek detailed information about a small business to ascertain risk—depending on which their application may be accepted or rejected. Ultimately, everything boils down seriously 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 are a few types 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 may result in labeling a company as “high-risk”:

Some processors could label you as “high-risk” if you're a fresh entrant and have never 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 could increase your risk perception as well.
The same goes for businesses which have controversial products or operate on a smooth legal slope.
Businesses which can be overly determined by international sales could also have high-risk scores. This is because of the relatively unpredictable economic dynamics abroad.
Industries which can be highly regulated by legislation or governments are also labeled “high-risk.”
How Do High-risk Accounts Change from Regular Accounts for Payment Processors?
Being labeled as a high-risk business can appear to be 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 many ways by which 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 in USA, a merchant services provider may require 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 individual credit history (to watch out for 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 might go as much as 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.