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High-Risk Merchant Account? Find the Right Processor for You

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Ryleigh Stangness | April 7, 2022

“High risk merchant? Here is how to find the right processor. Plus, tips to get approved for a merchant account sooner.”
8 min read
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    Do you have a business that falls into the high-risk category? It can be hard to find a merchant account provider willing to work with you.

    Aside from the sting of rejection and crushing disappointment, this leaves your business unable to process payments via credit or card, which can be crippling.

    However, there is hope for high-risk businesses - You may find your perfect match yet. In this blog post, we'll discuss what precisely high-risk means, who typically qualifies, and how you can find the right match and get approved for a merchant account.

    We'll also tell you what factors payment processors consider along with a merchant's risk to determine whether you will be approved for a merchant account.

    Bonus: We will even briefly touch on red flags to watch out for when looking for a payment processor as a high-risk business.

    So if you're struggling to find love - we mean a payment processor - because of your high-risk status, read on!

    High-Risk Merchants: Which businesses make payment processors nervous and why

    You're a business owner in a high-risk industry, or you are processing large amounts - For whatever reason, every time you reach out, you are left hanging. Why is it so difficult to find a payment processor? Read on to find out.

    What is the risk of accepting high-risk merchants?

    When you're setting up your business, you're unlikely to think about whether or not you're going to be operating in a space that payment providers consider high-risk. What does it mean when a processor deems a merchant as high-risk? The answer? It's in the name - Risk. What is the risk a payment processor is taking on when they agree to process your payments.

    Sometimes even businesses that might be perceived as perfectly reasonable may be considered high-risk because of the likelihood of fraud or chargebacks that may occur. For example, businesses selling large ticket items far in advance, such as airlines or music festivals, can be considered high-risk because those purchases can be embroiled in disputes, refunds, reselling, and other activities that can increase the risk for the payment processor.

    How do I know if I'm a high-risk merchant?

    While payment processors try not to judge a book by its cover by looking at a multitude of case-by-case and specific reasons, it usually comes down to these factors when deciding whether a business is a good match:

    • If your business is brand new and is still developing its reputation
    • Financial stability of the business or the owner has a low credit score
    • The time between delivery of the products or services from payment
    • If the industry the business operates in has a high chargeback ratio
    • Product or service standardization
    • Processing amount and volume
    • Dependencies your business relies on such as time or materials,

    For example, a business may not be considered high-risk, but because they are processing $100,000 at a time, that will bump them up into the risk category.

    There are many surprising industries that payment processors may consider high risk such as interior design. An example of an industry that often relies on materials from elsewhere to deliver its services which creates a dependency on delivering their product- opening themselves up to chargebacks and deposit refunds.

    Cabinetry, large construction projects such as building pools, furniture, or custom builds take quite a while to make, often with a large deposit paid down. Events especially- just think of the Fyre festival- that should paint a picture for you of the extreme risk possibility payment processors could be taking on. Anything with delayed delivery of a month plus is at risk of a chargeback from an unsatisfied customer.

    An example of product or service standardization may be web design, multi-level marketing, or life coaching "“Where the deliverables may not be standardized, replicable, or measurable.

    Suppose your business is considered a prohibited industry for a payment processor, meaning they don't accept those select industries under any circumstance. That could include online sales of weapons, adult materials, drugs or drug paraphernalia, or similar products. In that case, you won't be able to work with that processor, but there might be others who will.

    Different payment processors will have their own way of classifying and dealing with potentially high-risk merchants, so it's worth shopping around to collect information from several processors if you think your business might be considered high-risk or prohibited.

    How do high-risk merchants get approved?

    Generally speaking, if your payment processor is open to working with you, you can do a few things to help build your case.

    Give your business a makeover

    First, make sure you understand what factors make your business high-risk -- which we just talked about in the last section. Then, try to mitigate those risks as much as possible.

    For example, if your business has high chargeback rates, you can implement a fraud prevention system.

    Create an online presence with customer reviews and product/ service images and information. Individual roofers, plumbers, and contracting companies, for example, have more frequent transaction volumes, which elevates their risk. Creating an online presence, for example, can build your reputation with reviews and product information.

    Make your processor fall in love

    Second, work with your processor to get all the documentation they need. Payment processors who offer an individual merchant account to high-risk merchants may ask for financial records to determine whether they can support you.

    This may include:

    • A credit check
    • Balance sheets
    • Cash flow statements
    • Income statements in the last two years
    • Chargeback history (up to 6 months)

    Payment processors may ask for this information primarily to get a basic understanding of how much cash or debt the business has on hand. This is valuable context to predict how well prepared your business is to handle chargebacks -- which they have been determined to be at risk of receiving.

    This context will help payment processors form hypotheses to questions like, "Does this merchant have the funds to cover large sums or instances of chargebacks, or will we as the payment processor be at a loss?

    Find a high-risk processor who will accept you as you are

    If the industry your business is in or the products you sell is the reason why you're considered a high-risk merchant, there is not much you can do to change that (outside of changing your business, of course). In this case, then you may need to find a payment processor who specializes in high-risk merchants. They often have experience in this area and are able to work with high-risk merchants and provide credit card processing services to them.

    What about businesses that are just starting out?

    A huge challenge for new businesses is their lack of demonstrated credibility and financial history.

    Don't get discouraged.

    There may be processors willing to take a chance on you, and others might come up with a compromise to help new merchants get started. We will cover some things your payment processor might work with you on to approve a merchant account.

    What should I do if I'm a high-risk merchant?

    Some payment processors will work with new and high-risk merchants to approve them by keeping them on a short leash until the training wheels are off. This could look like this:

    • Periodic account reviews- looking into a transaction, for example.
    • A hold on your funds- ex. For the first 90 days
    • Check-ins for the first few months
    • They may contact customers to ensure satisfaction and get a reference of the business's history, product satisfaction, and more.

    These things help you build trust and confidence with your new payment processor while you two are still getting to know each other. That way, they can make sure you are who you say you are when they are essentially taking a chance on you that you won't pull the rug from under them and leave them to front the bill.

    Finding the right match: The right payment processor for you

    Although you might be high-risk, and the dating pool seems a little narrower, don't settle for just any payment processor. Payment processors are not all the same; they often have their own unique areas of specialization where they can best meet the needs of specific businesses or markets.

    This means that just because a payment processor is great for one type of business, they may not be a great fit for another, or they may not even be able to provide payment processing to certain kinds of businesses. This is especially true when it comes to finding a payment processor for high-risk merchants.

    While high-risk payment processors are generally offering the same types of services as regular processors, they often also include:

    • Higher processing rates
    • Longer contract terms
    • Less flexibility than traditional processors
    • Frozen funds
    • Reserves on merchant accounts
    • Lower customer service ratings

    Ideally, you may want to work with a payment processor who offers you the same excellent experience and perks as other non-risk merchants, although building the relationship might take a little more work.

    Learn about what to look for in a merchant account provider, such as individual vs. shared merchant accounts, the pros and cons of each, and which may be best for you.

    Overall, don't skip on the features, services, and cost savings of a quality payment processor.

    When it comes to processing payments, there is so much more than accepting in-person payments" -your business may also benefit from the perks of cardless and virtual payments, invoicing, E-commerce, ACH, and EFT/PAD payments, and POS hardware and software.

    Final Assessment

    So, you're a high-risk merchant. What now? Don't worry. We've got your back.

    First and foremost, don't settle for the first processor that comes along

    Take the time to find one who will work with you and understands your unique needs.

    Secondly, make sure you have all of your ducks in a row before applying for a merchant account.

    This means having a solid business history, financial statements such as balance sheets, cash flow statements, and chargeback history for the past two years.

    Finally, if you still can't find a willing processor, consider looking into processors who accept high-risk merchants

    There are some even gems out there who will work with you on probationary terms if you are just starting out.

    With the right processor and some hard work on your part, you should be able to sign up for a merchant account and accept payments at your business sooner than you think.

    It's time to feel good about your payments.

    Sign up instantly with no paperwork or commitments.

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