High Risk

What is a High Risk Merchant Account and Do I Need One?

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Taylor Stika
June 14, 2024


Let's face it: no one carries cash or writes checks anymore. Credit cards, debit cards, mobile wallets, and electronic payments are the champions of today's consumer world. And as a business owner, you know that not accepting these payment methods means missing out on a lot of good business.

To allow people to pay this way, your business needs a few things: a payment gateway provider, payment processing service, and merchant account service. Unfortunately, acquiring these services can be difficult if you're a high-risk business owner.

When high-risk businesses want to accept contactless payments, credit card payments, or any other form of electronic payment, they need a merchant account provider. However, legitimate businesses classified as "high-risk" are often turned away by merchant service providers and banks. That's where high-risk merchant accounts come in.

Let's cover a few basics before discussing whether you need a high-risk merchant account.


What Is a High-Risk Merchant Account?

As the name suggests, a high-risk merchant account is a merchant account that can be used by high-risk businesses. Just like a traditional merchant account, a high-risk merchant account allows your business to immediately receive the funds from an electronic transaction. These middleman accounts serve as a protective layer between the customer's bank account or credit card company and your business bank account.

High-risk industries are more likely to attract high-risk transactions, meaning the risk of fraud and chargebacks is significantly higher than it would be in other businesses.

With a high-risk merchant account, your company can establish a rolling reserve to protect against these potential issues. A merchant account will use this cash reserve (funded by your company) to offset friendly fraud or legitimate chargeback fees. Under this arrangement, your company avoids paying these fees with cash flow.

What Factors Determine if a Merchant Is High-Risk?

Many everyday-use industries may fall into the high-risk category, including tech support, travel, and coaching. Industries that may pose a reputational risk to a financial institution, such as CBD, firearm, nutraceutical, credit repair, and adult industries also qualify as high-risk.

If your company does not fit in any of these industries, there are still a few other reasons why it may be classified as "high-risk:"

  • High chargeback ratio: When your company's ratio of chargebacks to transactions is higher than average (0.65% for many industries), a traditional merchant account provider may classify your business as "high-risk." High chargeback ratios suggest to a provider that a merchant is engaging in fraudulent transactions or business practices, both of which increase risk levels for the merchant account service.

If you have a high chargeback ratio, your merchant account service may place a hold on your company's funds, terminate your account, and add you to the MATCH list—a record that could prevent you from opening another merchant account. Without an account, your business would no longer be able to accept electronic payment methods.

  • High fraud or refund rates: ECommerce merchants who offer online products such as adult content, tech support, or software subscriptions are often at greater risk of "friendly fraud." This type of fraud occurs when a customer participates in a transaction only to later claim that the charge was fraudulent. Industries with physical products might also experience this type of fraud if a customer requests a refund for a functional product, claiming it was damaged or dysfunctional.

Merchant account services face a reputational risk if they are found in the middle of several fraudulent transactions. If your company is found to have higher fraud and refund rates than usual, you will likely be classified as "high-risk."

  • Poor personal credit or financial history: A bad credit score suggests to a potential merchant account service that you might not make good on your financial commitments. They likely will not allow you to open up a merchant account with them because it increases their risk level.

Similarly, if your business has an unfortunate financial past, you may be unable to open a traditional merchant account.

  • Multi-level marketing: Though it's a common practice, many financial institutions classify multi-level marketing (MLM) as a risky business model. If your company uses this model, a high-risk merchant account is the way to go.
  • Continuity billing and free trials: Surprisingly, subscriptions and continuity billing are considered high-risk activities. Because most continuity billing is done automatically, customers will often dispute these transactions, increasing the risk of chargebacks.

Likewise, free trials that automatically bill upon termination often result in a chargeback, whether fraudulent or legitimate.

If any of these points apply to your company, you should open a high-risk merchant account. High-risk merchant account services such as those offered by Zen Payments can help protect your company from fraud and chargeback fees while allowing you to conduct electronic transactions in higher-risk industries.

Why Do I Need a High-Risk Merchant Account?

If you're still wondering, "Do I really need a high-risk account?" The answer is simple: If you are a high-risk business, you need a high-risk merchant account.

But why?

Frankly, certain industries are not respected by many financial institutions and, thus, are not afforded the same opportunities and rights as other industries. As unfair as this may seem, the reality is that high-risk businesses looking to open a traditional merchant account will be turned away.

If a business becomes high-risk while using a low-risk merchant account, it may be subject to a funding freeze, an account termination, and a MATCH list designation.

Any high-risk business hoping to accept payment methods outside of cash and check must open a high-risk merchant account to avoid these repercussions. While processing fees can be higher than those of low-risk merchant accounts, a high-risk account can save you money and give you peace of mind in the long run.

Zen Payments: A One-Stop Shop for High-Risk Merchants

At Zen Payments, we understand just how difficult it can be for a business owner to find high-risk merchant services, high-risk payment gateway providers, and high-risk payment processors. Even when you do find a high-risk merchant account provider, the approval process can be grueling and the approval rates discouraging—not to mention the egregious merchant fees.

That's why we strive to offer our clients the cream of the high-risk merchant service crop. Here’s what sets us apart.

  • Versatile solutions: Zen Payments doesn't just offer high-risk merchant accounts alone. We also provide our clients with reliable high-risk payment processing and payment gateways.
  • Custom merchant accounts: With over 15 years of experience in providing high-risk merchant services, Zen Payments works with an extensive network of banks to provide your business with a reliable, custom account.
  • Chargeback protection: Unlike other high-risk merchant account providers, Zen Payments offers high-risk payment processing with chargeback protection services.
  • Fraud protection: Along with high-risk merchant accounts and payment processing services, Zen Payment also offers a secure payment gateway for your brick-and-mortar store. This retail point-of-sale system will help you reduce fraud by preventing insufficient fund sales.
  • High approval rates: At Zen Payments, we want to give your business the chance it deserves. With a 98% approval rate, we're ready to help your business thrive. Bad credit score? No problem—we regularly approve business owners with credit scores as low as 500. If necessary, we will even work with you to improve your score so you can be approved.
  • Affordable fees: High-risk merchant services shouldn't run your business into the red. Our team at Zen Payments works hard to make our high-risk services accessible and affordable—even for businesses who are just starting out.

Being a high-risk business owner is just that: high-risk. Between chargebacks and fraudulent transactions, finding the merchant support you need to help your business grow can be difficult.

At Zen Payments, there is nothing we want more than to help you succeed. So, if you are looking for high-risk merchant account providers, look no further than Zen Payments. With 15 years of experience in high-risk merchant services, our experts are ready to join your team.

What are you waiting for? Invest in your success by getting started with Zen Payments today!

Frequently Asked Questions

Who Determines if a Business Is High-Risk?

Financial institutions such as banks, merchant account providers, and payment processors determine which potential clients are considered "high-risk" based on that institution's criteria.

How Does Having a High-Risk Merchant Account Affect You?

If you have a high-risk business, having a high-risk merchant account allows you to accept several forms of electronic or digital payment such as credit cards, debit cards, mobile wallets, and card-not-present transactions. This type of account will also help protect your business against chargeback fees and fraudulent transactions.

What Types of Businesses Are Considered to Be "High-Risk?"

Here is a list of industries and business types that might be considered "high-risk:"

  • CBD
  • Adult products and entertainment
  • Nutraceuticals
  • Coaching
  • Credit repair
  • Firearms
  • Tech support
  • Travel
  • Subscription services
  • Cryptocurrency
  • Dating sites
  • Big-ticket items
  • MLMs

Additionally, businesses with a higher chargeback likelihood, poor credit scores, or bad financial history may likewise be considered "high-risk."

Can a High-Risk Merchant Account Protect Your Business?

High-risk merchant accounts protect your business by taking on liability for chargeback fees and fraudulent transactions. Rather than dipping into your business's cash flow, a high-risk merchant account uses funds from a rolling reserve to pay these fees.

These accounts also act as a middleman between your business and customer credit card companies, so you don't have to wait for the customer to pay their credit card bill. This allows funds from a transaction to be transferred into your business account immediately.

For more information about high-risk merchant accounts, check out our FAQ page!

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Our merchant service specialists are the best in the business and will work with you from start to finish to get your account approved!

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Taylor Stika is the CEO and Founder of Zen Payments. With a background in the payment processing industry starting in 2015, Taylor has extensive experience in managing and optimizing payment systems. Under his leadership, Zen Payments has grown and developed into a reputable provider of high and low-risk payment.


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