Most payment providers will not accept high-risk merchant accounts due to their underwriting guidelines, preventing the approval of any high-risk merchant account service.  This forces these merchants into seeking out a specialized payment processor able to provide credit card processing services to high risk businesses. Many times these high-risk merchant account services can come with costlier caveats than a traditional merchant services agreement, including higher fees, reserves, and other charges.  So when looking at credit card fees on payments between different types of businesses, do not be alarmed if a high-risk merchant is quoted a much higher fee than that of a retail or similar location.

Working with a high risk payment processing service can help businesses access the proper financial channels to help limit fraud or chargebacks. A payment processor specializing in high-risk merchant account services is able to work with many of the problems faced by these industries. Creating a long-term solution for accepting credit card payments is essential for any high-risk business looking to succeed in its industry.  If a business’s risk is considered high and they are not working with an acceptable payment processor, the chances of problems arising in the future will only intensify over time without a high-risk merchant account.  Take this time to learn about the best solutions for high-risk merchant businesses.

What is a High Risk Merchant Account?

High-risk merchant accounts can accept payments in multiple ways depending on the sales environment of the business. Merchant can use the same merchant account to accept retail and online transactions with certain credit card processing systems. The entire authorization process is identical for both online e-commerce and retail sales once starting the transaction. The real difference between a high-risk merchant account and a general account is the underwriting thresholds that each bank is willing to accept, with some credit card processing companies having an appetite for more than usual amounts of risk.  Depending on the business’ industry, the history of the business or its owner, these can affect a merchant requires a high-risk merchant account in order to operate.

merchant account

The types of businesses approved for merchant services can vary between the different merchant acquiring banks. Merchants with businesses that require high risk credit card processing need specific underwriting and account maintenance protocols to avoid future payment problems. These high risk partner processors are different than other merchant services companies because they are willing to take on the extra risk associated with that company’s payments.

Merchant accounts have also created complimenting segments of the payment processing industry to accommodate the needs of other high risk businesses. One type of payment processing service that is becoming increasingly popular with high risk businesses has been aggregated merchant accounts. Merchants that have experienced a hard time establishing merchant services have generally had more success with a payment aggregator.  These types of high-risk merchant solutions can be faster to apply for, but can be more expensive than a high-risk merchant account.

Aggregated accounts work by combining higher risk businesses, the processor is able to spread the risk between multiple merchants and reduce their exposure. If one high-risk merchant experiences a spike in chargebacks, the overall number in the account can still be minimal. Merchants operating a business with their own account would run the risk of account termination. But regardless of the type of business or account, all credit card processing services operate in a similar fashion regardless of how they accept payments, if it’s through a high-risk merchant account or otherwise.

How Do High Risk Merchant Accounts Work?

Credit card transactions involve a number of different organizations working together to process the customer’s request and deliver payment to the merchant. Through an intricate and complex series of software and different applications, transactions can be securely processed globally.  Transactions have no preference or treat payments any differently if a business is using a high-risk merchant account or a regular merchant services organization.

High Risk Merchant Processing Authorizations:

credit card processing

High Risk Card Associations:

The financial backbone of the credit card networks that are owned and operated by Visa, MasterCard, American Express, and Discover. These networks handle the bankcard transactions, linking the merchant acquiring banks to the customer issuing banks. The networks of Visa and MasterCard operate open-loop networks and allow various vendors to issue cards or sell merchant services. The networks of American Express and Discover operate as closed-loop and subsequently, allowing those companies to manage all aspects of the process.

High-Risk Merchant Acquiring Bank:

Also known as the acquirer is the organization that makes the connection between the payment processor and the card association. The acquirer handles the issuing of most merchant accounts and oversees the management of the account. The acquirer sends transactions and receives the responses from the Card Network. Acquirers also manage the overall security of their merchants through PCI Compliance. In some instances, the merchant acquiring bank operates as its own payment processing arm to directly solicit merchants.

High-Risk Payment Processor:

The role of the payment processor is to handle the transactions between the high-risk merchant and the merchant acquiring bank. Using a high risk payment gateway, customer data is securely passed through the payment processor. Payment processors provide merchants with their payment gateway, monthly statements, and customer service. It is generally the payment processor that decides what businesses they want to provide merchant account services.

Bankcard Issuing Bank:

Supplier of the credit cards to the consumers, the card-issuing bank manages the consumer’s credit or debit accounts. The issuer maintains the customer’s information on file and handles all customer service for the cardholder. Some of the most common credit card issuers today are Capital One, Citi, and Chase. The companies of American Express and Discover handle their customers directly as part of their closed network system.

Once the payment gateway receives the card authorization information, the data goes through encryption and is sent to the payment processor. From the merchant acquiring bank, the customer authorization file is entered into the payment card association’s network. At the card association, the account file is unpackaged and read to determine the name of the customer’s card issuing bank. Once that information is determined, the authorization request is sent to the card issuer for their review. No matter what a merchant is considered, a high-risk merchant or a retail merchant would have their transactions go through the same process.

Once the authorization request reaches the card issuer, the customer’s account undergoes a series of checks. Various fraud checks along with account verification are run and a determination is reached for the authorization request. Per the decision, the response code passes back through the network to the acquirer and processor. The approval or denial response arrives at the customer’s location, whether through a POS terminal or website.

Types of High-Risk Businesses

Similar to other industries, high risk merchants need a way to accept payments from their customers. Since most high risk industries operate online, accepting debit and credit cards is essential for their business’ survival.
merchant services

Finding the proper high-risk merchant account provider to accept higher risk credit card payments can prove to be challenging at times. Once merchants are able to find a payment processor, it can be an extremely profitable partnership.

Common High-Risk Merchant Services Industries include:

  • Adult Merchant Account Services
  • Alcohol Merchant Account Services
  • Continuity Merchant Account Services
  • Firearms Merchant Account Services
  • Tobacco Merchant Account Services
  • e Cigarette Merchant Account Services
  • Smoke Shop Merchant Account Services
  • Hookah Merchant Account Services
  • CBD Merchant Account Services
  • Travel Merchant Account Services
  • Tech Support Merchant Account Services
  • Pharmacy Merchant Account Services
  • Nutraceutical Merchant Account Services
  • Kratom Merchant Account Services
  • Sarms Merchant Account Services
  • Peptides Merchant Account Services
  • Drug Paraphernalia Merchant Account Services

The industries that find themselves to be considered high risk change over time, whether its new types of businesses making an appearance or previously high-risk merchant being reclassified.

How do High-Risk Merchant Account applications get approved?

Some businesses are unable to establish merchant services with local payment processors. This can be due to the industry, the history of the business, the financial background of the merchant, or the location of the business. Companies that fall into any of these categories usually need to seek alternative payment processing services. Many of these businesses will find a solution through a niche payment processor or offshore merchant account provider that is able to provide specialized merchant services.

High-Risk Merchant Account Processing Industries

Most of the “sin” industries including adult, tobacco, firearms, and gaming are classified as high-risk merchant businesses. This is primarily due to the potential legalities surrounding the nature of their products or business models. This includes requiring merchants to install website safeguards or other security measures for online transactions or using secure POS terminals. Other high risk industries have requirements to pay annual registration fees to the card associations for accessing their networks.  Regardless of the regulations or requirements for a high-risk merchant account, when you are using the proper payment processor they will make sure that everything is taken care of with the card associations and banks to prevent any future surprises.

Excessive Chargeback Problem

Some businesses might operate in industries that are medium to low risk but experiences high chargebacks. High chargebacks and/or returns can be an issue for merchants depending on how they operate their business. Many merchant account providers are not able to absorb the high chargeback ratios usually seen with high-risk merchant account businesses.  This would be a reason these industries could be considered a high-risk merchant when trying to apply.

Low Credit Score

In some instances, the merchant might be perfectly capable of qualifying for general merchant services, but the owner’s personal problems are preventing it. Most payment processors have a minimum credit score required to approve an application. Many times this will require a high-risk merchant account provider with the ability to accept these clients. These accounts will generally have higher than normal fees and could potentially have a reserve placed on sales. These types of arrangements are not always available from general merchant services providers.


Merchants that have ended up on the Terminated Merchant File (TMF) have a negative history with the payment card associations. Many times this termination of the previous relationship does not allow the business to establish new merchant services. These problems might have stemmed from violations, excessive chargebacks or funds owed to a payment processor or the card association.

Businesses needing high-risk merchant account services for their TMF will need to seek out an appropriate payment processor. TMF businesses benefit by partnering with a high risk credit card processor to work towards a second chance. This gives many merchants the opportunity to fix problems from previous processing partnerships and work towards a low-risk merchant account.

High-Risk Payment Processor Requirements

Opening a merchant services account can require a number of documents to help the bank and its underwriters determine both the business and the applicant. Understanding that financial services, especially services that could potentially involve international transactions, need to be scrutinized to verify their legality. The risk of money laundering or even funding terrorism has been the driving factor that underwriters for banks and other financial institutions remain vigilant too. In addition to reducing legal liabilities, payment processors also need to protect their interests by knowing the financial histories of both the merchant and business. Proper underwriting will help financial institutions reduce their losses by properly reviewing applications.

Most Common Requirements

  • Completed Application
  • Color Copy of Government ID
  • Copy of Voided Business Check
  • Previous Processing Statements
  • Previous Bank Statements
  • Reserve Acknowledgement (varies)
  • Application or Set up Fee (varies)

The need for a complete application might seem like a strange requirement. Why wouldn’t this be done? Many times, merchants are in a rush or have filled out so many applications that they start skipping over parts. Though the applications can be submitted on a partial basis, underwriters will not continue with the application until all pertinent information is provided. For merchants in a rush to set up their credit card processing, this will only delay the approval process. Prior to submitting an application package, merchants along with the sales organizations they are working with, need to review and verify that the applications are complete with all the correct information.

Fees for High-Risk Payment Processing Services

All types of merchant services, whether a merchant account or a local business’ merchant account have fees associated with processing transactions. These types of fees and their costs can vary between every payment processor. Most high risk credit card processing solutions will charge a discount fee along with a fixed fee for every transaction. Even though some flat fee services do exist, they tend to be some of the costliest than a dedicated high-risk merchant account.

Most high-risk merchant accounts charge transaction fees regardless if the sale is approved or declined. The discount fees are based on a percentage of the sale price and are only billed for approved transactions. High risk businesses will usually have higher fees than lower risk merchant services, while the aggregated accounts are generally the most expensive.

Before a merchant decides on a credit card processing solution, its best to fully understand the terms. With multiple fees and a variety of costs associated with establishing the merchant services, a misunderstanding can be costly. With countless higher risk merchant account solutions available on the market, businesses have many options for merchant services.

Apply for a Merchant Account Today!

Starting a business that required a higher risk merchant account to accept payments can be a challenge at times. First determining if you are considered a high-risk merchant might seem like a small thing, but that can have a large effect on pricing. One of the hardest parts of being this kind of merchant is finding a payment processor that will work with a account considered high risk.  While it might seem easy, it can be a challenge to know if the processor is able to set up and maintain a high-risk merchant account.

The payment processing professionals at Allied Payments are available to help merchants quickly apply for the best high-risk merchant accounts. Our team of professionals will help any merchant, even if you are just wondering what is a high-risk merchant. We have the experience to help merchants from the most difficult industries to find reasonable and secure high-risk merchant services. Contact our offices for more information on getting started accepting high risk credit card payments.