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What is a High Risk Merchant?

May 19, 2023

what is a high risk merchant account?

How do you know if your business has been categorized as a high risk merchant and why is it important to make sure you have the right merchant account for your business? Not understanding the difference or the importance could have a detrimental impact on your business.

Businesses that are considered high risk have to know who the right processors are. Those high risk merchant account providers that are willing to process transactions for your high risk business, reputable companies like PayKings, are offering solutions to those businesses that need it most. These payment processors are willing to accept the liability for the increased risk associated with those categorized high risk businesses.

Surprisingly, most merchants who do fall into this class are unaware of it. So, how do you know whether or not you fit into the category of high risk?

Top Reasons a Business Falls into The High Risk Category

  • The business is selling products online

This type of service is commonly referred to as Card-Not-Present merchants.

  • The business is in a highly regulated industry

Such businesses involved with selling tobacco or e-cigs, firearms, and alcohol are among a few of the many that would fall in this category.

  • The business is in an industry that a bank may see as a “reputational risk”

Companies that deal with information technology that might risk stolen customer information could be considered a reputational risk, as are those in any adult industry.

  • The business industry is known for having a high instance of chargebacks or fraud

Merchant accounts that fall in this arena often experience increased chargebacks, identity theft, account takeover, and more; convincing banks to run in the other direction.

  • The business sells products or services on a continuity or recurring billing model

This type of business model brings a lot of chargebacks when clients are billed without consent or remembering they even signed up; too many chargebacks will lead to your account shutting down entirely.

  • The person signing on the merchant account has bad credit

This one is a no-brainer. Banks are less willing to lend funds to those with bad credit which is when a high risk processing company comes in handy.

Why is it important to make sure you have the right account for your “High Risk” business?

Accounts for high risk businesses

The main reason to make sure you have the right high risk processing account for your business is to avoid the chances of your merchant account being shut down. The bank can close your account and hold funds, even without notice. This means you have no way of selling your products or services, it stops all cash flow entirely, AND the money from the products or services you sold could be held by the banks for months.

When you start off with the right merchant account, you increase the prolonged longevity of the account. The bank’s underwriting or due-diligence does not end after the account has been opened. There is ongoing risk monitoring that is associated with all merchant accounts. So if an account has been opened under false pretenses or the business model is deemed high risk after the fact, expect the account to be closed. Alternatively, starting out with the right high risk merchant account betters the odds that the acquiring banks will be more lenient.

The label of high risk merchant isn’t taboo. Factors such as your industry, location, and even the clientele can categorize your business and apply that high risk merchant label. However, this shouldn’t send you into a panic, just because you may be more difficult to finance, doesn’t mean you can’t get the merchant processing your business needs.

Many times the approval process can be quick and many companies like PayKings provide free quotes. Get the full list of High Risk business types here.

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Kyle Hall CEO

May 19, 2023 | Merchants | Kyle Hall