Running a business that deals with high-risk transactions can be challenging, especially when it comes to securing payment processing. For many businesses, securing a high-risk merchant account is a critical step in ensuring smooth operations. High-risk businesses, which may include those in industries like adult entertainment, gaming, travel, or health supplements, often face difficulties in getting approved for a merchant account. In this article, we’ll walk you through how to secure a high-risk merchant account for your business, along with some key considerations to keep in mind.
What Is a High-Risk Merchant Account?
A high-risk merchant account is a type of payment processing account that is tailored to businesses operating in industries considered high-risk by payment processors. These industries are typically associated with higher chargeback rates, fraud risk, or regulatory scrutiny. As a result, payment processors often impose higher fees and stricter conditions for businesses in these sectors high-risk merchant account.
Some examples of high-risk businesses include:
- Online gambling and gaming
- Travel and tourism
- Subscription services
- Adult entertainment
- Telemarketing
- Nutritional supplements and health products
Why Are Some Businesses Considered High-Risk?
Certain industries face higher risks because of their nature, which can involve issues such as:
- Chargebacks and disputes: High-risk industries tend to have a greater incidence of chargebacks, which occur when customers dispute a transaction.
- Fraudulent activity: Some high-risk businesses, especially in online spaces, are more susceptible to fraud and identity theft.
- Regulatory challenges: Businesses operating in sectors like gambling, adult services, or pharmaceuticals may face stricter regulations, making them more vulnerable to compliance issues.
- Unpredictable revenue: Some businesses, especially those in industries like travel or subscription services, have fluctuating revenue streams, which increases the risk for payment processors.
Steps to Secure a High-Risk Merchant Account
Securing a high-risk merchant account is more complicated than applying for a standard account. However, by following the right steps, you can improve your chances of approval.
1. Research High-Risk Payment Processors
Not all payment processors are willing to work with high-risk businesses, so your first step should be to find one that specializes in high-risk merchant accounts. Some processors are more experienced in handling chargebacks, fraud prevention, and the regulatory requirements of high-risk industries.
Examples of payment processors that cater to high-risk businesses include:
- PayPal (for certain high-risk categories)
- Durango Merchant Services
- eMerchantBroker
- Instabill
- PaymentCloud
Take your time to research each processor’s terms, fees, and reputation in the industry to ensure you’re making the right choice.
2. Prepare Your Business Documentation
To apply for a high-risk merchant account, you’ll need to provide certain documentation. This will help the payment processor evaluate your business and assess its level of risk. Typical documents required include:
- Business identification: Proof of your company’s legal status (e.g., articles of incorporation or a business license).
- Financial statements: Recent financial records to prove the stability of your business.
- Chargeback history: A record of your chargebacks, if any, and how you manage them.
- Industry-specific documents: Depending on your industry, you may need to provide additional certifications or licenses (e.g., a gambling license for an online gaming business).
Ensure that all documentation is up-to-date and accurate, as any discrepancies can delay or even prevent approval.
3. Implement Fraud Prevention Measures
High-risk industries are often targeted by fraudsters, so demonstrating that you have strong fraud prevention measures in place will increase your chances of approval. Consider implementing the following:
- Address Verification System (AVS): This tool checks if the billing address matches the one on file with the card issuer, helping to prevent fraud.
- Card Verification Value (CVV): Requiring customers to enter the CVV code during transactions adds an extra layer of security.
- Fraud detection software: Use software that can detect suspicious transactions or patterns that may indicate fraud.
Having these measures in place not only protects your business but also shows the payment processor that you are proactive in reducing risk.
4. Maintain a Solid Credit History
Payment processors will look at your credit history when determining whether to approve your high-risk merchant account application. While a poor credit score might not necessarily disqualify you, a solid credit history shows that you are a trustworthy business owner and that you manage finances responsibly. If your credit score is low, consider taking steps to improve it before applying.
5. Negotiate Terms and Fees
High-risk businesses often face higher processing fees and more restrictive terms. These might include higher chargeback fees, rolling reserves (where a percentage of your sales are held in reserve), or monthly minimums. Be prepared to negotiate these terms, but understand that some fees might be non-negotiable due to the inherent risks involved.
It’s also important to understand the payment processor’s policies on chargebacks and refunds. A high chargeback ratio can result in higher fees or even account termination, so aim to keep your chargebacks as low as possible by providing excellent customer service and offering clear refund policies.
6. Monitor and Improve Your Risk Profile
Once your high-risk merchant account is approved, it’s essential to continue monitoring and improving your risk profile. This means keeping your chargeback ratio low, adhering to industry regulations, and maintaining fraud prevention measures. Working with a dedicated account manager can help you address issues quickly and stay compliant with payment processor requirements.
Conclusion
Securing a high-risk merchant account may take extra effort, but with the right research, documentation, and preventive measures, it’s certainly achievable. A good merchant account will help ensure your business can accept payments securely, reduce the risk of fraud, and build a trustworthy relationship with customers. By understanding the unique challenges of high-risk businesses and addressing them proactively, you can enjoy smooth, uninterrupted payment processing.
