High-Risk Credit Card Processing Explained

High Risk Merchant Accounts Pick Up Where Other Processors Quit

A high risk merchant account is similar to the type of credit card one can get if he has poor credit history.  On the bright side, the borrow is able to finance purchases he may not be able to afford in cash, such as medical bills or car maintenance.  On the dark side, it’s going to cost him dearly in high interest rates and finance charges. “High risk” merchant accounts work the same way but from the seller's standpoint.

How to Spot a High Risk Merchant

Business owners who have been previously denied a merchant account due to being deemed as “high risk” usually have either poor personal credit or a business type that is prone to customer experience chargebacks, fraud, or sell legally questionable services or products. Banks are also often wary of providing credit card processing services to businesses that could pose a risk to its own reputation and may deem such businesses as high risk merchants.

Merchants who have poor personal credit histories often ask why their own credit matters.  The answer is that merchant accounts are a form of credit because the merchant is paid by the bank before they collect any actual money from the customer.  In essence, a credit card payment to a merchant is considered a loan for a short amount of time.  Merchant account providers are also at risk of fraudulent activities by merchants with malicious intent, so credit history is one way to determine the risk of doing business with a potential merchant.   Merchants with poor credit history should contact processors that specialize in high risk merchant services. These companies tailor their services to high risk merchant account processing, but at higher rates than traditional merchant accounts.

Merchants with high risk business types also have options for credit card processing.  Just like processors who will accept merchants with poor credit, there are processors that will take on high risk merchant business types. You can see our list of the top five high risk merchant account providers here.

Possible High Risk Merchant Business Types

Below is a list of business types that are generally considered to be “high risk” merchants.

Bad Debt Services

• Debt Consolidation
• Credit Counseling
• Credit Restoration/Repair Agencies
• Collection Agencies
• Loan/Mortgage Modification Services
• Credit Card Rate Reduction Services
• Financial Coaching/Restoration (Consulting or Software)

Call Lines

• “Chat” and “Gossip” Lines
• Horoscopes and Fortune Telling (Includes retail locations)

Dating & Escort Services

Gambling

• Sweepstakes
• Sports Forecasting/Odds Making
• Lotteries
• Internet Gambling
• – OTB (Off-Track Betting)(Generally excludes bingo, pickle cards & raffles for charitable purposes; i.e. Legit charities

Merchants Whose Product/Service May be Illegal

• Age-Restricted Products (i.e. alcohol sold via MOTO/Ecommerce without proper means of age verification)
• Tobacco Products sold via MOTO/Ecommerce
• Prescription Medications sold via MOTO/Ecommerce
• Medical Marijuana
• E Cigarettes
• Illegal synthetic marijuana supplements or “Teas”
• Paraphernalia Stores (either retail or moto) where over 50% of merchandise is for illegal purpose (water pipes, bongs, etc.)

Money Service Businesses

• Currency Dealer or Money Exchanger
• Check Cashing Services
• Dealer, Seller or Redeemer of Traveler’s Checks, Money Orders, or Stored Value Instruments
• Money Transmitter
• Any Organization Diverting Money out of the U.S.

Sexually Oriented and Pornographic Businesses, Materials/Services

• Adult Telephone Conversations/Audio Text (900
• Numbers)
• Adult Book and Video Stores
• Adult Novelties
• Adult At-Home Parties (i.e. Passion Parties)
• Gentlemen’s Clubs
• Massage Parlors
• Male/Female “Enhancement” Supplements

Travel

• Airlines
• Charter Services
• Tour Operators
• Travel Agents and Brokers
• Time Shares and Time Share Related Businesses
• Travel-related Membership Clubs
• Cruise Lines
• Vacation Planners

Other Merchants Types

• Bail Bonds
• Firearms
• Infomercials
• Multi-Level Marketing (MLM)
• Merchants Offering an Extended Product Warranty/Guaranty or Service Plans
• “Opportunity Merchants” using a “free/discounted trial period” / “pay for shipping only” model
• Online supplements or nutraceutical businesses using a “free/discounted trial period” / “pay for shipping only” model

Opening a High Risk Merchant Account

Keep in mind that the rates and fees with a high risk merchant account are going to be considerably more than a traditional merchant account.  This writer recommends that high risk merchants carefully select a high risk merchant account provider because there are a few bad apples that could ruin many of your days.  It is highly advised to avoid high risk offshore merchant accounts as they can pose a significant personal and financial risk if the wrong processor is selected.  As with any merchant account processor, be sure to research all potential processors thoroughly looking for signs that the processor may be less than reputable.  It may also be wise to set up a separate deposit account used only for deposits from the merchant account provider.  In any event, the most important thing to remember is to read the merchant account contract word-for-word.  You don’t want to be surprised in this industry.

Be sure to leave your experiences, questions, or comments in the comment section below.