High-Risk Shopify Merchant Accounts

A merchant account enables businesses to accept credit card payments virtually or in person. These accounts are categorized into two types of accounts, low risk and high risk. The latter is for businesses with a higher likelihood of fraud or chargebacks. While some industries are naturally at higher risk than others, businesses can gain high-risk status because of their internal financial history.

A business might be high risk for a variety of reasons, including:

• Bad personal credit: Having bad personal credit means banks will be less likely to give you loans. Consequently, you might find difficulty in securing a merchant account when you have bad credit. If your FICO^® credit score drops below 600, banks and other payment processing companies might label your business as high risk.

• High fraud, chargeback or refund rates: If your company has high chargeback or refund rates, you might have a high-risk account. Any business can potentially lose its merchant account when they have a significant rate of chargebacks or fraud. Further, your company will be less trustworthy to banks when your refund rates exceed sales.

• Offering subscriptions, continuity programs or free trials: Often, people don’t realize they’ve signed up for an indefinite subscription, which leads to more chargebacks. Additionally, when customers forget to cancel a trial, they’ll raise your chargeback rate.

Certain industries are more likely to put your merchant account in the high-risk category, which include:

• Adult: Due to banks’ stigma surrounding the potentially controversial topics and products of the adult industry, adult businesses are often high-risk. These companies are also often startups that lack processing history.

• Bad credit: If you have personal bad credit, a bank could deny you a merchant account even though you may have ample business funds.

• CBD: CBD merchants are often denied merchant accounts due to strict industry and government regulations surrounding CBD’s similarity to THC. When considering most CBD transactions happen online, it’s crucial to find a stable high-risk merchant account provider.

• Coaching: If you provide high-ticket coaching services, you might have trouble getting a merchant account. For example, offering a seminar with a 30-day refund trial period may increase chargeback rates.

• Credit repair: Although these companies help people with low credit get out of debt and improve their credit scores, they’re considered high-risk. Those in this industry frequently offer subscription-based services, experience a high amount of chargebacks, and can be expensive.

• Firearms and ammunition: These businesses are considered high-risk regardless of their credit score, volume of chargebacks or business history. The gun industry is also highly regulated, so it can be difficult to find a payment processing service.

• High volume: These are merchant accounts that receive a large volume of transactions, and have been on the rise with the recent increase in e-commerce sales. Many transactions can increase both fraud and chargebacks, putting high-volume companies in the high-risk category.

• Multi-level marketing: Although multi-level marketing (MLM) is a legitimate industry, MLM accounts might be considered high-risk due to the high volume of bad actors devising pyramid schemes and excessive chargebacks from slow refund requests.

• Nutraceuticals: These companies sell food-derived alternatives to pharmaceuticals, which banks may find high risk due to an elevated chargeback rate from inaccurate product descriptions and a high volume of transactions.

• Subscription continuity: Offering subscription-based services is an excellent way to retain customers. However, companies with subscription models experience a higher number of chargebacks due to the automatic billing process. Many customers also sign up for free trials, forgetting to cancel their subscription and leading to higher chargeback rates.

• Tech support: The tech support industry is vulnerable to fraud because of the exposure to sensitive customer information, making it high risk.

• Travel: Many travel companies have strict refund policies in case of cancellations. Because cancellations lead to higher chargebacks and the services that travel companies provide are often expensive, the travel industry is frequently considered high-risk.

If your business belongs to one of these industries, you’ll most likely have a high-risk Shopify merchant account. While you won’t be able to use the Shopify Payment Gateway, as described below, Shopify has partnered with some third-party gateway providers for high-risk accounts.