What Is just a High-risk Merchant Account?

Businesses which are characterized as “high-risk” will require a high-risk merchant account to accept debit and credit 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's no central authority or framework in the payments industry that determines the danger factors of a business. Instead, every bank and every payment processor has its pair of standards.

Some payment solution providers may state upfront that they do not serve certain industries. Others will typically seek detailed details about a company to ascertain risk—depending where their application may be accepted or rejected. Ultimately, everything 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 may 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 numerous other factors that can bring about labeling a business as “high-risk”:

Some processors could label you as “high-risk” if you're a brand new entrant and have not processed payments before.
Poor credit records or low credit scores for defaulting on loans, etc., are other significant factors. If your processor has previously place you on the MATCH list, that may boost 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 can be overly dependent on 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 may also be labeled “high-risk.”
How Do High-risk Accounts Differ from Regular Accounts for Payment Processors?
Being called a high-risk business can appear to be quite daunting. A processor may simply decline your application. Alternatively, however, a payment processor might elect to offset your inherent business risk by enforcing some measures.

There are several ways by which a payment processing company may mitigate its risk. These are also the prime differentiators between high-risk and regular merchant accounts.

Longer application process
If you're applying for a high risk merchant solutions, 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 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 around 1.5% as well as the interchange rate. While interchange fees can vary from company to company, generally, higher risk will incur higher fees.