High-Risk Merchant Accounts: What Small Business Owners Need to Know

High-Risk Merchant Accounts: What Small Business

As a small business owner, your business may be categorized as a high-risk merchant account. In today’s nearly cashless society, businesses must begin offering customers the option of paying with credit or debit cards. High-risk merchant accounts are services that allow businesses to accept those card payments from customers.

In a perfect world, credit card processing companies would treat all businesses equally. The right credit processor will treat you and your business fairly, but large, high-volume businesses typically have an advantage when negotiating processing rates and contract terms. Similar to a bank, credit processing companies view businesses based on the financial risk they present. Some processors are exclusive to low-risk merchant accounts, or accounts they see as a safer investment. If your business is not considered a low risk, the list of processors to choose from may become shorter. 

According to DoubleHelix, a merchant solutions provider with over 20 years’ experience, credit card processing companies look at the following factors when assessing a company’s risk:

  • Average monthly sales volume
  • Average credit card transaction amount
  • Main product offering
  • Location or selling region

In addition to these factors, you can do a quick assessment of your own by answering a few questions about your business.

How do you sell products?

Businesses that sell products online are typically considered high-risk, because many purchases are placed in an eCommerce setting versus in-person.

How regulated is your industry?

Some companies fall within highly regulated industries and are, in turn, labeled as high-risk merchants. Heavily regulated industries include industries such as healthcare, technology, and manufacturing.

Are fraud or chargebacks common in your industry?

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While chargebacks can be legitimate, some businesses are more likely to experience this type of fraud. An increased risk of fraud and chargebacks can be found in the software, electronics, and financial industries. These industries engage in risky, yet legal behaviors such as accepting recurring payments, multiples currencies, and offering subscriptions. This does not mean the industry is bad – it simply has a higher chance of experiencing fraud or chargeback situations. However, when you learn more about what is chargeback protection, you will find that there are ways to minimize your risk.

Does someone on your merchant account have bad credit?

This question is pretty straightforward. Like all loans or financial decisions, banks are careful about opening merchant accounts to those with bad credit. Small business owners need their credit history to help them, not burden them.

In the end, each payment processing company has their own guidelines and may determine risk on a case-by-case basis. Consider how your business fits the above criteria to make an educated guess on how your business will be viewed and what options will be available to you. For the better or worse, there is no gray area for credit processors when labeling businesses as high or low-risk merchants. You are either a high risk, or you are not.

Being labeled as a “high-risk merchant” may limit your choices as a small business owner, but it is not a death sentence for your business. Extremely small businesses may survive with payment service providers alone – such as PayPal or Square – but upgrading to a full-service merchant account is crucial as business continues to grow.

Businesses that are labeled as high-risk merchants must research and find merchant account providers that are willing to process transactions to businesses that pose a risk to their investment. The right credit processing company will accept the liability, because they trust you and your business to return the investment. Make sure the high-risk merchant service provider also accepts all types of electronic payment: 

  • American Express
  • Discover
  • Mastercard
  • VISA
  • Gift cards

If the factors and questions presented in this article hint at the possibility that your business would be considered high-risk, finding and partnering with a quality credit processing company will be critical to your business’s success. Credit processing companies should understand the best features of your business, even if other factors deem it as high-risk. What makes your company stand out from the rest? What proactive steps are you taking to ensure long-term business success? 

Some careful planning and a strong history go a long way to finding success as a high-risk merchant.


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