What are High Risk Merchant Accounts

Mar 26, 2022

A business starts with an idea. Once it takes root and you start looking into putting that idea into reality, you need to start thinking about logistics. There are rules and regulations pertaining to your business that will dictate your course of action.

One of the first decisions is whether or not to accept credit cards.

For a new business owner, words like merchant account and high risk can be intimidating. A merchant account is necessary for credit card processing, but you’ll need to find out whether your business type falls under the high risk category.

There are two types of business when it comes to the processing companies. High risk and low risk.

High Risk Vs. Low Risk Merchant Accounts

Different credit card processors will have criteria for categorizing each new account they sign. While there may be slight differences, there are some generalizations to help guide you to what category you will fall under.

High Risk

One of the first things a processor looks at is what type of business you are bringing to them. A high risk merchant poses more of a financial risk to the processing company. The terms of the contract may vary from provider to provider, but at the core of the agreement, they are covering their bases.

There are several criteria to determine the risk level of a business: high transaction volume, international payment (geographic location), new merchant, low credit score, and high risk industry.

High transaction volume

If a merchant clears $20,000 per month and/or an average transaction over $500 they are considered high risk. The greater volume simply means a greater level or returns and refunds.

International payment

Credit card processors look at where a business is located and where their primary markets are found. There are geographic areas that are low risk: Western Europe, Canada and the US, Japan, and Australia are a few of those areas.

If a business is located outside those areas or do the majority of their business outside the safe-zone, they are considered at risk for more fraud and revenue loss.

New merchant

New merchants are like a person with no credit score applying for a credit card. They will go through a probationary period as a high risk business to determine what category they truly belong in. Once they have established a payment record and the processing company can reevaluate their business that high risk assessment can change.

Low credit score

Like the new merchant, a business with low credit will fall under the umbrella of high risk until they can build their credit and renegotiate their contract.

High risk industry

There are many industries that are immediately classified as high risk. These types of businesses have a reputation for having high fraud rates and higher chargebacks percentages. CBD products, ticket sales, and gambling are a few industries that are tagged as high risk before they are even evaluated. 

Low Risk

A low risk merchant either does not check off the above boxes or has a business plan that the processing company approves of and forgos the high risk assignment.

Generally speaking a low risk business is a safer bet for a long term investment for the processing company. They don’t see the potential for large losses. As a result they give a low risk contract that offers the business better terms.

Who Determines High Risk Merchant Accounts?

A credit card processing company functions as the middleman between the credit card companies and the merchants. These processors make the final call on high risk accounts. There is no set standard that determines their choice, only loose guidelines.

The company looks at the above list and determine where your business falls.

The two biggest factors that determine the level of your merchant account will be historic refunds and fraud.

Refunds and Chargebacks

When a customer is dissatisfied with their product or the service, they can immediately demand something be done about it, or they may wait a day or even a couple weeks.

If the customer has moved beyond the immediate settlement and instead decides to dispute the charge with their credit card company, the problem falls on the processing company. Most credit card companies will reimburse the customer and then go after the processing company.

By this time, the money has generally cleared the processing company and been deposited with the merchant’s bank. The processing company cannot go into the merchant’s account and take money that may or may not be there.

To counter this problem, the processing company will require high risk businesses to maintain a cash reserve that they keep in escrow to pay chargeback fees.


While the credit card industry is making advances in fighting fraud, no system is 100%. Unfortunately, criminals often stay one step ahead of the industry’s countering tactics.

There are four main types of credit card fraud: card theft, account takeover, cloned cards, and card not present theft.

All of these are financially challenging to the credit card companies, but the use of card not present theft is especially rampant in online venues. As a result, online businesses often fall into the high risk category.

MATCH listing

One final factor in determining whether a business falls under the high risk category is the MATCH listing. A MATCH listing, or a TMF (Terminated Merchant File) means you have previously had a processing agreement terminated. The data is kept on a MasterCard database, and prospective financial providers check this database before taking on any accounts.

A previous termination automatically puts you in the high-risk merchant account category. Your account could have been terminated for a number of reasons, including excessive chargebacks, laundering, a fraud conviction, bankruptcy, and violating standards.

Your details will remain in the system for five years. If your account was terminated for an especially serious reason (for example, laundering or a fraud conviction) you may not be able to get a merchant account, high risk or otherwise, at all.

How to Get a High Risk Account and Thrive

Outside of type of business and location, there is not much any merchant can do to determine what sort of ranking they will be assigned. Different credit card processors will have their own internal criteria to help them determine how to categorize your business.

At Easy Pay Direct we strive to work with you to help your business thrive regardless of the risk level.

A high risk account is not a death sentence. In fact, the contract can actually work in your favor. Being required to maintain a cash reserve can actually work in your favor. The money is in escrow, which means it will eventually make its way into your bank account, but the reserve means you won’t be penalized for chargebacks and disputes.

Also, contracts can change over time. If you can put in place a sound business plan that reduces chargebacks, the contract can often be renegotiated when it comes up for renewal.

Having a high risk merchant account is better than the alternative, no account. To have any business succeed, risks need to be taken. While the moniker high risk makes it sound like the account is somehow tainted and doomed to failure, it is quite the opposite.

High risk simply means there are some hurdles that need to be surpassed to achieve business success. Every business has hurdles. They are all different.

Embrace the challenge and see what different credit card processors are willing to offer you in a contract. Consider your options carefully. Weigh them and see which ones will benefit your business the most.

Are you ready for your own merchant account?

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