Some businesses get flagged as “high-risk”—but what does that actually mean? Discover the factors that determine this label and how it impacts your ability to accept credit card payments. Whether you’re in firearms, supplements, or travel, understanding this classification is key to getting approved and staying compliant.
Episode Transcript
Hey everyone, and welcome to High Risk Merchant Accounts 101, brought to you by SoarPay!
Today, we’re tackling a fundamental question: What is a high-risk merchant account, and why do
some businesses get labeled as high risk?
A high-risk merchant account is a type of payment processing account designed for businesses
that banks and payment processors consider riskier than others. These businesses typically
face higher fees, stricter contract terms, and additional scrutiny from financial institutions.
But what makes a business high risk? Well, there are several factors that contribute to this
classification.
First, high chargeback rates are a major red flag. If a business has a history of frequent
chargebacks—when customers dispute transactions and request refunds—processors see it as
a liability.
Second, certain industries are automatically labeled high risk. Businesses in industries like
travel services, CBD, firearms, and debt collection often deal with higher fraud rates, regulatory
scrutiny, or payment disputes, making them riskier in the eyes of financial institutions.
Third, subscription or recurring billing models can trigger high-risk status. If a business
operates on a subscription basis—like membership sites or monthly product
deliveries—customers may forget they signed up, leading to chargebacks and cancellations.
Fourth, high ticket sales or large transaction volumes can make a business high risk. When
a company sells expensive items or processes large payments, banks worry about potential
losses from fraud or chargebacks.
Fifth, new businesses or low credit scores also raise concerns. Startups and businesses with
little to no processing history—or those with poor credit—may be labeled high risk simply
because banks lack data on their reliability.
So, what does this mean for business owners? If you’re labeled high risk, you might face higher
processing fees, be required to maintain a rolling reserve—where a portion of your funds is held
to cover potential chargebacks—or deal with longer approval times when applying for a
merchant account.
But here’s the good news: High-risk merchants can still process payments! It’s all about working
with the right payment processor.
Choosing a provider that specializes in high-risk industries is key. These processors understand
your business model, offer tailored fraud prevention tools, and can help you manage
chargebacks more effectively.
Want to learn more about high-risk payment processing? Subscribe for more insights, and
check out SoarPay for solutions tailored to your business needs. See you next time!