How to Open a High-Risk Merchant Account: Step-by-Step Guide

Many businesses accept card payments online, but those classified as "high-risk" by payment processors face unique challenges.

Factors such as the nature of your industry, chargeback history, or financial instability can lead to higher fees, stricter terms, and increased scrutiny when trying to set up a merchant account.

This step-by-step guide on how to open a high-risk merchant account will walk you through the process and how to avoid common pitfalls.

A high-risk merchant account is a type of payment processing account specifically designed for businesses that have been deemed high risk by financial institutions.

High-risk merchants often operate in industries that have a higher likelihood of chargebacks, fraud, or regulatory scrutiny. Examples of high-risk industries include online gambling, adult entertainment, travel services, and credit repair.

Due to the increased risk associated with these businesses, high-risk merchant accounts typically come with higher merchant account fees, rolling reserves, higher transaction fees, and stricter terms compared to low-risk merchant accounts.

Step 1: Assess Your Business’ Risk Profile

Before applying for a high-risk merchant account, it’s essential to assess the risk profile of your business. Consider factors such as your industry, chargeback history, and the nature of your products or services.

Financial institutions perceive certain risk factors, such as international sales or card-not-present transactions, as indicators of a high-risk business.

Understanding your business's risk level will help you identify the right payment processor and prepare for the application process.

Step 2: Research High-Risk Payment Processors

Not all payment services and merchant account providers are equipped to handle high-risk accounts. Research high-risk payment processors that have a proven track record of working with businesses in your industry.

Look for merchant account providers that offer tailored solutions, dedicated account managers, and robust risk management tools. Reading reviews and testimonials can also provide insight into the reliability and support offered by these high-risk payment processors.

Step 3: Prepare the Necessary Documentation

To apply for a high-risk merchant account, you will need to prepare several documents. Common requirements include:

Having these documents to hand will help streamline the application process and give you a greater chance of approval.

Step 4: Apply for the Merchant Account

Once you have assessed your own high-risk business profile, researched payment processors, and prepared your documentation, it’s time to start the application process for the merchant account.

Fill out the application form provided by your chosen high-risk payment processor, ensuring that all information is accurate and complete.

Be prepared to answer questions about your business operations, sales volume, and the nature of your products or services.

Step 5: Negotiate Terms & Fees

After submitting your application, you may receive an offer from the payment processor. Take the time to review the terms and fees associated with the high-risk merchant account.

High processing fees and rolling reserves are common in high-risk accounts, but you may be able to negotiate slightly lower fees or more favourable terms based on your business's financial stability and chargeback history. Don’t hesitate to ask for clarification on any terms that seem unclear.

Step 6: Set Up Fraud & Chargeback Protection

Once your high-risk merchant account is approved, it’s important to implement fraud and chargeback protection measures.

Work with your payment processor to set up some risk assessment and management tools that can help detect and prevent fraudulent transactions. This may include implementing Address Verification Service (AVS), Card Verification Value (CVV) checks, and chargeback alerts.

These measures will help protect your business from excessive chargebacks and potential account termination.

Step 7: Start Accepting Payments

With your high-risk merchant account set up and fraud protection measures in place, you can start processing payments.

Ensure that your payment processing system is integrated with your website or point-of-sale system, allowing you to accept credit card payments seamlessly. Monitor transactions closely, especially during the initial stages, to identify any potential issues early on.

Step 8: Monitor Performance & Compliance

After you start accepting payments, it’s essential to monitor your account's performance and compliance regularly. Keep an eye on transaction volumes, chargeback rates, and any changes in your business operations that may affect your risk profile.

Maintaining a good relationship with your payment processor and staying compliant with their terms will help ensure the longevity of your high-risk merchant account. 

There are some common challenges for a high-risk business when it comes to opening a high-risk merchant account. The three below are the usual suspects with suggestions on how to avoid the pitfalls.

High Processing Fees

High-risk merchant accounts often come with higher processing fees. To mitigate this, shop around for competitive rates and negotiate with your payment processor or account provider.

Rolling Reserves

Many high-risk providers require a rolling reserve, which is a percentage of your sales held in reserve to cover potential chargebacks. Understand the terms of the reserve and plan your cash flow accordingly.

Account Termination

High-risk accounts are more susceptible to termination. To avoid this, maintain a low chargeback ratio and comply with your processor's terms and conditions.

Common questions asked by high-risk merchants looking to open an account include:

How do I Know if My Merchant Account is Considered High Risk?

Your merchant account may be considered high risk if you operate in a high-risk industry, have a history of excessive chargebacks, or engage in card-not-present transactions.

What are Some Examples of High-Risk Merchant Accounts?

Examples of high-risk merchant accounts include;

and many more!

DECTA specialises in providing comprehensive payment infrastructure solutions, catering to various stakeholders in the financial ecosystem, including payment service providers (PSPS), banks, and merchants. Our offerings encompass a wide range of services from payment acquiring to issuing and processing.

Robust risk management tools and regulatory compliance help mitigate potential issues, giving high-risk merchants the confidence to accept credit card payments without the fear of account termination. Additionally, dedicated account management and bespoke solutions mean that businesses can receive the personalized support they need to thrive in a competitive landscape.

By choosing DECTA, high-risk merchants can not only secure the necessary payment processing capabilities but also benefit from a partner committed to their long-term success in the payments industry.

Opening a high-risk merchant account may seem daunting, but with the right knowledge and resources, it can be a manageable process that sets your business up for success. By understanding the unique challenges associated with high-risk classifications, assessing your risk profile, and carefully selecting a payment processor, you can navigate the complexities of high-risk payment processing effectively.

Ready to simplify high-risk payment processing?
Partner with DECTA today and get the expert support and customized solutions your business needs to thrive. Contact us now to speak with a high-risk account specialist and take the first step toward seamless, secure payments.