What is Classified as a High Risk Merchant Account?

You're a new merchant and you need to find a way to accept credit cards. You’ve put in several applications but continue getting denials. After all this effort, you've realized what you actually need is a high-risk merchant account. The question is – why? What are the determining factors that make you high risk?

We see this a lot at ACCF. High risk merchants tend to have more requirements and most often see rates that are 3-10X higher than traditional accounts without this classification. 

It's difficult, we understand. Your business is legitimate and you follow all the requirements. To you, you’re not a risk at all. But, the reason you’re having a harder time is built into the name – risk. Banks and credit card processors are businesses, too, and they need to ensure their bottom line. 

Let’s look at the most common factors that determine whether your business is classified high risk and find ways to mitigate this challenge.

Top 7 High Risk Merchant Account Factors

1. Bad credit history. A low credit score with personal accounts will likely land a merchant in the high risk category. Credit scores are considered an indicator of how well finances are managed, so a lower score flags the higher risk.
2. Frequent merchant account changes. If merchant account providers find new accounts are being created often, it can be red flag. This creates questions of why the changes happen so often, possibly due to delinquent accounts causing closures? 
3. Excessive chargeback rates. Some industries simply have a high chargeback rate, automatically putting prospects in the high risk category. This could have nothing to do with a specific merchant's business, but rather the industry's consumer behaviors. 
4. High rate of fraud. Other industries may have numerous transactions that are deemed fraudulent, this too will push a merchants to be considered high risk. This often involves e-commerce virtual terminals and card-not-present transactions.
5. Selling illegal or newly-legal products. Businesses with products that can be associated with illegal activity, like cannabis or related paraphernalia, will automatically be a high risk account. 
6. Offshore or near-shore businesses. A business that operates in the United States but is located out of the country is also a red flag. Businesses in this category are difficult for account underwriters to know the inner workings of your business. 
7. Ticket amount in high dollar range. Selling items with high values, like electronics, can make a merchant considered high risk. Chargebacks for these sales are a significant loss.