High Risk Merchant Account & Credit Card Processing Guide


Performance Card Service (PCS) provides high risk merchant services for domestic payment processing in the U.S. and offshore. If you are looking for a high risk merchant account with more features and better terms, or are a new business without established credit, PCS will help you identify your best credit card payment options, prepare your application, make the right choice, and implement the system, as well as offer ongoing support to make sure your account services are meeting your expectations.

Businesses fall into the high risk category for any number of reasons. You need a high risk merchant service provider if any of these conditions apply to your business.

  • You operate in a high risk vertical. Financial institutions consider certain industries to be risky by nature. These include regulated businesses (such as cannabis products and alcohol), industries where chargebacks are higher than average (such as adult products), and where cancellations are higher than average (such as in the travel industry, where weather and, more recently, COVID-related issues change travel plans). If your business operates in any of these verticals, or is closely associated with them, you need a high risk account.
  • Your business history or current situation suggests high risk. If you’ve experienced bankruptcy, if you have had credit problems in the past or have been a victim of fraud, or if your business uses recurring billing or the subscription payment model, banks are likely to put your company in the high risk category. Also, if you have just opened a business and have no credit history, you may encounter challenges in securing an account.

What Is a High Risk Merchant?

Often, a business discovers it is high risk only when it tries to get a merchant account for accepting credit card payments. What was thought to be a routine part of setting up shop, taking credit cards, suddenly becomes a real obstacle for being in business at all. Many issuing banks either decline these applications altogether or accept them with higher-than-average fees and various restrictions that make operating a business quite challenging.

But all is not lost! Our company specializes in helping businesses like yours obtain accounts for credit card processing with the most favorable terms available. Our experience over many years in the business has enabled us to build solid relationships with payment processors that actively seek out merchants like you and are set up to support them well.

Companies are categorized as risky by banks for a number of reasons. Here are the most common.

  • Being in a regulated industry. Tobacco, firearms, pharmaceuticals — many such businesses require extra steps and additional procedures to validate customer identity and process transactions. More complex and sensitive transactions put more risk on the issuing bank.
  • Being in an industry with a high rate of chargebacks. Chargebacks, whether initiated by a dissatisfied customer or by the processor or bank due to a procedural or clerical error, cost money and chew up an enormous amount of the bank’s time conducting investigations and arbitration. Some industries, such as hospitality, have a high chargeback rate by nature — people frequently change travel plans, are dissatisfied with accommodations, cancel trips, etc.
  • Being an online business. CNP (card not present) transactions are inherently riskier than POS (point of sale) transactions, since there’s no physical way for the seller to “size up” the legitimacy of a customer. Because online businesses are more susceptible to fraudulent transactions, they are usually put in the high risk category.
  • Having high average ticket sales. Big ticket items elevate risk of fraud and also increase the financial hit of a chargeback. Again, the bank has to cover the risk with the higher fees and tighter terms associated with a high risk account.
  • Having bad personal credit. For entrepreneurial businesses in particular, the financial strength of the company depends on the financial strength of the business owner. If you have a bad credit history or unsettled credit account issues, you should clear them up as much as possible before applying for an account.
  • Being a new business. If you have a new business with no credit history, banks will likely assume the worst and put you in a high risk category. In the right circumstances and with the proper documentation, this obstacle is sometimes overcome.
  • Your business is using the recurring billing model. Subscription businesses and other types of recurring billing models are quite popular, but carry a higher-than-average risk of chargebacks (see the second bullet point).
  • You’re doing a lot of international business. Dealing with multiple currencies and accepting orders from individuals or businesses halfway around the world increase transactional complexity and opportunity for fraud — as well as making challenging disputes and arbitrating chargebacks much more difficult.

In summary, if your business experiences a high level of chargebacks, has a higher-than-average vulnerability to fraud, or struggles financially, banks will underwrite your account application with great care before accepting it, if they accept it at all.

If you need a more effective payment processing solution, contact us now.


What Is a High Risk Merchant Account?

Businesses must set up a merchant account to process credit cards and certain other types of digital transactions. It is a type of bank account into which money is deposited by banks after the company accepts credit card orders. A payment gateway creates the connection between your business bank account and your merchant account. Since the bank is fronting the money to the merchant (cardholders typically pay their credit card bills every 30 days), if a transaction falls through, the bank is liable for the full amount if the merchant cannot cover it. Thus, if a merchant has financial issues or is in a business where a greater-than-average number of transactions fall through, a bank may offer an account, but it will be a high risk account.

These types of accounts have two main differences. First, the account carries higher transaction fees, and probably some will have several additional fees imposed as well. Additional fees, terms and conditions may include early termination fees, increased chargeback fees, longer contract periods, and transaction or volume caps. Second, the account likely requires the merchant to maintain a reserve fund to cover chargebacks as they occur. Reserve funds reduce cashflow and may affect a merchant’s ability to maintain smooth operations.

Both the fees and reserve funds are methods used by a bank to compensate for the higher financial risk of handling the merchant’s credit card orders. Transaction fees for these accounts vary widely, depending on the nature and magnitude of each merchant’s level of risk. On the low end, we see fees just under 3%, but they can run higher than 7% for very risky situations. Reserve funds generally amount to about 5% to 10% of a merchant’s credit card sales over a 180-day period. Funds are set up to be either rolling reserves or a fixed amount.

Merchants are deemed risky for a variety of reasons. If you are in a regulated industry or an industry that experiences a higher-than-average number of chargebacks, or if your business is highly susceptible to fraud and/or if your business is not on firm financial footing, banks will place you in the high risk category.

High risk businesses may be more common than you would at first imagine. For instance, some online businesses are risky because they exclusively process CNP (card not present) transactions. CNP transactions are inherently more vulnerable to fraud because no one is physically present during the sale to observe potentially fraudulent behavior or other warning signs. Another large category of higher risk is businesses using the recurring billing model. Subscription services have many advantages, but recurring bills increase the likelihood of chargebacks, Customers forget they subscribed, they become disenchanted with the product/service, their cards expire, etc.

If you are in a risk category and want to set up a merchant account or look for one with better terms, contact us now. Our company specializes in  helping you find a payment processing solution that works the way you need it to work.


What Is High Risk Credit Card Processing?

High risk merchants, like all others, must establish a merchant account to process credit card payments. Because more risk is associated with processing payments for these businesses, banks charge higher fees and impose stricter terms on accounts for such businesses.

The bad news is that these types of accounts may put the merchant at a competitive disadvantage if competitors are able to obtain accounts on more favorable terms. In addition, the additional fees and other costs associated with these accounts impede cashflow and make conducting business more difficult for the merchant.

The good news is that these accounts, despite the drawbacks, enables the merchant to accept a universally popular method of payment, and thus increases the merchant’s ability to attract new customers, retain customers and increase sales to existing customers. Without the ability to process credit card payments, many companies would have a difficult time staying in business at all.

Our company specializes in helping merchants obtain and maintain payment processing accounts with the most favorable terms possible. And more good news: Many merchants have some control over their abilities to demonstrate lower levels of risk and have their account fees reduced and account terms relaxed. We spend a great deal of time with our clients trying to achieve these results.

Banks classify companies as being high risk for credit card processing because their businesses are more susceptible to fraud, incur a high number of chargebacks, have weak finances or operate in a vertical that is considered risky. With this in mind, things you can do to reduce the riskiness of your business and get a better account include:

  • Become PCI-compliant in your policies and systems for storing and transmitting digital data (such as credit card information).
  • Install, patch and regularly update antivirus and malware software.
  • Make return and refund policies clear, fair and easily findable.
  • Have your company descriptor (the company name that appears on a customer’s credit card statement) match your brand exactly, so the customer is sure to recognize it.
  • Make the descriptions of your sale as they appear on the credit card statement clear — this reminds the customer what exactly he/she purchased.
  • Build cash reserves into your financial planning to accommodate the need for an account reserve fund.
  • For brick-and-mortar merchants, train the staff to recognize the warning signs of fraudulent credit card purchases, such as attempts to place rush orders at closing time, producing a credit card from a pocket rather than a purse or wallet, etc.
  • Resolve outstanding personal and company credit report issues.

A few cautionary notes are worth mentioning here. First, the actions listed above take time to prompt a response from banks. Financial institutions want to see improvements implemented and sustained over several months before taking action to reduce terms or fees on an account. Second, if your business is in a regulated industry (such as firearms) or an inherently risky industry (such as travel), then your company will be deemed risky even if your own risk mitigation exceeds the industry average. Third, if you do everything right in terms of mitigating risks, you may succeed in reducing the fees and terms of your account — but you’ll still most likely have an account that is less attractive than one a low- or medium-risk merchant could get.

If you would like to explore new payment processing solutions for your business, please contact us now. We have decades of experience and will help you find a better way!


How Do I Know If I Need a High Risk Credit Card Processing Company?

Financial institutions categorize businesses as high risk for a variety of reasons. If any of these situations apply to your company, you may find establishing a merchant account very difficult.

  • Industry-related risk. Some industries are automatically classified as high risk because they are by their nature more susceptible to fraud and/or chargebacks. We provide credit card processing services in just about every vertical where this is the case.
  • Company-related risk. Whether or not you are in a high risk industry, your company is likely to be deemed risky if you have a poor credit history, have a higher than average chargeback rate or have been a victim of fraud, have a high transaction size, operate in a risky location or have experienced bankruptcy. Banks scrutinize your financial risk factors very carefully before setting up an account. One of the most important features of our credit card processing for merchants is our expertise in helping you submit a successful account application.
  • New business risk. If you have just opened your doors and have little or no credit history, you may have difficulty establishing a relationship with a financial institution for credit card processing. And, if you are just getting started, we will guide you through the application process and help you establish an account with the most favorable possible terms.

What Are the Rates and Fees for a High Risk Merchant Account?

Most merchants can obtain a merchant account to accept credit card payments, but the rates, fees and conditions are higher than those that apply to low- and medium-risk businesses. The question is not whether your business will pay more, but rather how much more.

Card-issuing banks charge more to these businesses because they incur a higher risk. The important thing to remember is that if a merchant cannot cover the cost of a cardholder chargeback, the issuing bank is responsible for paying the charge. So, businesses with a higher-than-average rate of chargebacks, businesses in an industry with a higher-than-average rate of chargebacks, businesses with a poor credit history or weak financial foundation, and businesses with a higher-than-average vulnerability to fraud are all categorized as risky during the underwriting of an account application.

With respect to processing rates, pinpointing an average is difficult because there are so many variables. The range we see for all-in transaction fees runs from about 2.9% on the low end, to as much as 7% to 9% for extremely risky operations. Most accounts fall into the 4% to 6% range.

With respect to account fees, these accounts usually incur the account setup fees that also apply to low- and medium-risk accounts. Setup fees may be higher because the underwriting process is more involved, with underwriters going back 5 years or more to scrutinize your records.

With respect to the terms of an account, the most significant is the requirement to have a reserve account. This account, usually a rolling reserve, amounts to 5% to 10% of the credit card transactions billed over a 180-day period. There are also flat reserve fees capped at a predetermined amount. Regardless of the specific requirements, a reserve fund impedes cashflow and can be burdensome to the merchant.

Many processor fees may be applied to these types of accounts, just as they would be to a standard account. Processors apply fees for cancellations, chargebacks, monthly service and a host of other things. The important thing to remember is that many of these processor fees are negotiable, and even for some high risk merchants, can be reduced or eliminated. On the other hand, a regrettable fact of life is that certain  businesses may not be able to qualify for a credit card processing account, even using an offshore processor. But even here, using payment options such as eCheck and ACH will enable such a merchant to conduct business and prosper. 

Our company specializes in helping merchants obtain high risk payment processing accounts with the best possible rates, fees and conditions. Our assistance starts with helping you put together information for your application, reviewing various offers, and then assisting you with account setup and ongoing support. Considering multiple offers is very, very advantageous for risky merchants, since different processors and banks have different levels of interest in supporting various categories of businesses. We have worked for decades with all the top account providers in every risk vertical, so you can rely on us to help you find the best overall payment processing solution available.


How Long Does It Take to Set Up a High Risk Merchant Account?

An account takes under five business days to set up if the merchant is ready to go with all documentation and website compliance, and responds to inquiries from underwriting and compliance in a timely manner. The most significant and common obstacle we see with issuing accounts swiftly occurs when the merchant delays the application process by not being ready to move forward, not answering questions or not having access to required documents.

Since we offer several account solutions, merchants may want to weigh all the options before making a decision, adding time to the process. Nevertheless, since different processors have different appetites for these types of accounts, sacrificing some time to compare multiple offers can pay handsome dividends for a business. Even small differences in fees add up to substantial sums if your transaction volume is high. Furthermore, if you obtain an account with significantly better terms — for instance, a lower reserve fund requirement or none at all — you’ll position your business much better for revenue growth and profitability.

One thing to keep in mind when submitting your application is to provide clear and complete information. The more “holes” the bank’s underwriting team has to fill, the longer finalizing their review will take. For high risk enterprises, gathering all the necessary information can be a daunting task, since you may have to go back 5 years into your financial records. And not only will you need business records, but you will also most likely be required to submit personal financial information. This is because when the need arises to cover chargebacks and other losses associated with processing credit card transactions, owners and in some cases board members have liability as well as the business entity itself.

In addition to submitting clear and complete information, supplying accurate information on your account application is also imperative. Sometimes businesses are tempted to gloss over items that they believe reduce their chances of being approved for an account. This is actually the opposite of what will happen. Financial issues such as bankruptcies, liens, delinquent and terminated accounts, and other such red flags are a matter of public record. Account underwriters are adept at finding this type of information, so supplying it upfront is much better for you than having the underwriters uncover it on their own. Not only will supplying the information speed up the application process, it also will help reduce the odds of your application being declined.

As specialists in high risk accounts, we assist you from start to finish in the application process. For many startups and even established businesses, knowing where to find the necessary information and how to prepare it are daunting tasks. We have helped clients successfully submit applications thousands of times, and we are intimately familiar with the requirements of all the top payment processors.


Why Do Some High Risk Merchant Account Applications Get Declined?

The main reasons an application gets declined are as follows:

  1. Prohibited business type – Not everyone can get an account. Your product/service first must be legal, and then you need to secure a processor that supports that product/service. All processors have prohibited product/service categories with which they will not work. Some also have a restricted list that they will support, but with much more difficult approval standards.
  2. Merchant is on the MATCH/TMF for chargebacks or fraud – While we can be successful getting a merchant approved when it has been previously put on MATCH, we need to know the reason first. If a merchant was hit down due to fraud, often securing a new account is difficult. However, if the reason is excessive chargebacks and the merchant has taken steps to improve this over time, we can often help.
  3. Merchant is operating from a prohibited jurisdiction – Most processors won’t service merchants in certain countries, including Iraq, Iran, Syria, Somalia and Russia. Be sure to inquire first so we can ensure we can service your account.
  4. Underwriting suspects the merchant is performing some sort of fraud – Often we find documents look doctored or fabricated, so we need to request backup copies from the merchant. If the merchant cannot produce them, we have to decline. Also, if the merchant’s business practices are called into question and the company cannot respond to the satisfaction of compliance, then we usually have to decline as well.
  5. Merchant is unable to submit the required documents to underwriting – This happens quite a bit, but we have a set of required supporting documents that we must collect to satisfy underwriting. If we cannot produce them, there is sometimes a way around the problem, but often it’s a decline.
  6. An issue with compliance comes up during review, such as the method of sale, the licensing the merchant holds or doesn’t hold, issues with a suppler or the fulfillment process, or the website’s lack of PCI compliance. Be sure to check licensing requirements in your state before submitting an application. Licensing and permitting requirements vary considerably from one state to another, and many businesses are caught off guard by underwriters simply because they never realized licensing was necessary.
  7. Poor personal credit history — If the person holding the merchant account (typically a business owner) has a history of bad credit, this can trigger a decline. The bank’s reasoning is that the company’s ability to repay a chargeback is only as strong as the personal credit of the accountholder. If you have problems with your personal credit rating, cleaning them up before submitting an account application helps improve the possibility of approval.

If your business has one or more of the issues above, please contact us. With decades of experience helping businesses like yours overcome challenges, we can safely say that if there is a way to get you set up to accept credit card payments, we will find it!

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If you need a merchant account for your business, you have come to the right place. For more than 20 years, PCS has helped merchants through the process from start to finish. Our success and staying power in this challenging field are a result of our straightforward and transparent approach to business, our deep understanding of the complexities of high risk accounts and our strong relationships with merchant account providers.

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