What is a Low Risk Merchant Account?

A low-risk merchant account is a payment processing account that allows businesses to accept credit card and debit card payments under terms that reflect their lower financial and operational risk.

Payment processors classify businesses as low-risk based on factors like industry type, transaction volume, chargeback rates and financial stability.

In this article, we'll look at what makes a merchant account low risk, how to open one, and the benefits and challenges.

Compared with high risk and medium risk accounts, low risk merchant accounts are designed for individuals and businesses seeking financial stability.

Typically, a low-risk merchant account offers the following features:

Cost-Effectiveness

Low risk merchant services typically come at a much lower cost, in comparison to high risk merchant accounts.

Faster Approval Process

Since low risk merchants have a stable transaction history and operate in less volatile industries such as a retail store, compared to high risk businesses operating in industries such as adult entertainment, applications are processed quickly.

Approval times range from a few hours to a few days, compared to weeks for high-risk merchant accounts.

Minimal Reserve Requirements & Contract Terms

Many low risk merchant accounts do not require a rolling reserve, meaning all earned revenue is immediately accessible.

If a reserve is required, it is usually much lower than those considered high risk.

Standard Chargeback Protection

Low-risk merchants get fewer penalties for chargebacks, making it easier to maintain a healthy account.

The payment service provider may even offer automation chargeback mitigation and fraud prevention tools to help dispute fraudulent claims.

We all know the ins-and-outs of high risk categories, but what exactly makes a business low risk?

Industry Type

Low risk businesses tend to be in stable industries where fraud rates are low, with consistent revenue streams. Industries including retail, healthcare and wellness, and professional services are considered low risk compared to high risk industries, such as subscription payments and pharmaceuticals.

Low Chargeback Rate

A low chargeback rate is a key factor in determining a business’s risk level. This is when a business’s customers rarely dispute transactions or request refunds through their banks or credit card companies

A chargeback rate below 0.5%–1% is considered low. This feature of low risk merchants reduces the risk of account penalties and higher processing fees.

Businesses with quality products, clear refund policies and strong customer service often maintain low chargeback rates.

Low Average Transaction Value & Low Volume of Transactions

Eligible businesses usually have a low average transaction size. On average, in the UK, this is usually around the purchase value of £20, especially in retail and hospitality.

However, this can vary depending on context, such as the payment method. For example, contactless payments tend to have a lower value than chip-and-pin transactions.

Low average transaction value allows for steady cash flow, which is less attractive to fraudsters and easier for customer spending.

Businesses that have a lower volume of transactions are favorable to payment processors.

Domestic & Low Risk Country Transactions

Primarily, businesses that work domestically are considered lower risk because of reduced fraud and chargeback risks compared to international payments.

International transactions involve compliance with multiple regulatory systems, cross-border fees, and lower approval rates. Domestic transactions bypass this, meaning faster and simpler transactions.

Similarly, businesses dealing with low risk countries who have stable economies with low fraud rates and strong financial regulations are thought to be low risk.

Established Financial History

Businesses with a strong financial history are more likely to qualify for low-risk merchant services, especially in industries with frequent card-present transactions.

Retail merchant accounts, for example, often benefit from stable revenue, low chargeback rates, and predictable transaction volumes, making them favourable to payment processors.

Low risk merchant accounts offer businesses benefits beyond just cost savings.

Lower Transaction Fees

Since low risk businesses pose less financial risk to payment processors than their high risk counterparts, they can indulge in reduced transaction fees. Lower fees per transaction help businesses maximise profits and reduce operational costs.

Faster Approvals

Another key benefit of this type of merchant account is a faster and simpler approval process compared to high risk accounts.

Since low risk businesses have stable revenue, lower chargeback rates, and minimal fraud risk, payment processors require less documentation and thorough investigation, leading to quicker approval rates.

Minimal or No Rolling Reserves

Low risk merchant accounts typically harbour little to no rolling reserves. This means payment processors don't hold a portion of the merchant’s revenue as a security measure.

Therefore, allowing businesses to access their full transaction funds faster, improving cash flow and financial flexibility.

Unlike high risk merchants, who may have 5-15% of their funds withheld for months, low-risk businesses benefit from immediate or next-day access to their earnings without restrictions, making financial planning and operations smoother.

Access to More Payment Options

Lastly, a low risk merchant account provides businesses with a broader range of payment options, making transactions smoother for customers and in turn increasing sales potential.

Since these businesses are deemed financially stable and low risk, payment processors offer access to credit and debit card payments, digital wallets (Apple Pay, Google Pay, PayPal), recurring billing, and even Buy Now, Pay Later (BNPL) solutions like Klarna and ClearPay.

Now you know the benefits of low risk merchant accounts, let's explore how to actually open one.

Step 1: Research Payment Processors

Within the payment processing industry, choosing a payment processor requires extensive research to ensure they meet your business needs.

Remember to research the features each payment processor offers and the fees you have to payout. Look for low transaction fees, effective fraud prevention tools and chargeback protection, fast settlement times and payout schemes, payment integration options and the processors' reputations such as fair contract terms and high reliability and security, especially if something goes wrong.

Step 2: Gather the Necessary Documents

You will need to collate supporting documentation to send alongside a completed application to your chosen provider. The specific documents required can vary depending on the provider and your business type.

For the most part, documentation will include business registration documents, bank statements, and tax returns. Make sure documents submitted contain the most recent and accurate information.

Step 3: Complete the Application

The payment processor will provide a merchant account application form that will need to be completed.

Basic business information business will be asked such as company name, company’s tax ID number (EIN) and contact information. Certain merchant account providers may require additional information, including industry type, business structure, processing history and current situation.

The application may also ask you to provide details about your product types or services, payment methods you wish to accept and whether transaction processing will occur in person, online, or both.

In addition to business information, you will need to provide personal information as the business owner. This is because the merchant account provider may conduct a credit check on you as part of the underwriting process.

Remember to read through the terms and conditions and fully grasp the fees associated with the account type.

Step 4: Wait for Approval

After you have completed your application, you'll have to wait for approval from the provider, which can take days to several weeks.

Various factors can affect the approval wait time, such as incomplete or inaccurate application information, issues with supporting documentation that may involve requests for additional information. In turn, delaying the process.

Providers could conduct a review of your business background. They may evaluate factors like sales volume and processing history to assess the risk of fraud or chargebacks.

Present accurate and complete information on the application and a rapid response to requests for additional information or documentation, this will ensure a seamless approval process.

 Step 5: Set Up Payment Integration

Once your merchant account has been approved, you can set up payment integration with your chosen provider. Depending on your needs, you can tailor the features offered for low risk merchant accounts. This tends to be a relatively simple process.

Like all business operations, opening a merchant account can come with its obstacles.

Chargebacks

Even though low-risk merchants are characterised as having a low chargeback rate, it’s still important to note that chargebacks can still have a significant impact on your account.

While the risk is lower than for high risk merchant accounts, businesses should remain vigilant by implementing effective fraud prevention tools and monitoring chargeback ratios to stay under processor limits. It's also important to note that some providers will offer less fraud prevention and chargeback protection.

Actively reducing chargebacks helps maintain favourable processing rates and keeps steady cash flow.

Compliance

Low-risk merchant accounts may still face strict compliance obligations.

They still need to adhere to PCI DSS (Payment Card Industry Data Security Standard) requirements. This means ensuring customer payment data is stored and processed securely to avoid penalties.

Remember to keep up to date with any compliance changes and updates from your merchant provider or payment processor to maintain account standing.

Payment providers can change terms, increase fees, or suspend accounts if they believe a business is becoming high-risk.

Processing Limits

Low risk merchant accounts are under processing limits and must keep within these to keep the benefits of low risk status.

As these accounts are designed for lower transaction values, payment processors may impose restrictions if monthly or single transactions exceed set thresholds.

Businesses should inquire about potential processing limits to ensure they align with their business objectives, especially if they experience factors like seasonal spikes, as these and unreported changes can even cause account freezes

By staying aware and proactively managing these challenges, businesses can maintain a seamless payment processing system.

A low-risk merchant account appeals to businesses with stable revenue, low chargeback rates, and domestic transactions. Industries such as retail and hospitality, professional services and small-ticket eCommerce tend to qualify.

In contrast, high-risk merchant accounts are designed for businesses that face higher chargeback rates, fraud risks, or regulatory scrutiny. These include industries like travel, gambling, or subscription services(with high chargeback ratio). These accounts often come with higher processing fees, rolling reserves, and stricter approval processes due to the increased financial risk for payment providers.

Choosing the right merchant account depends on your business model, transaction volume and risk profile.

DECTA offers secure, cost-effective payment solutions for low risk merchants, featuring transparent Interchange++ pricing, seamless transaction processing, and diverse payment options like recurring billing and Pay By Link.

Our Acquirer Processing Platform ensures efficient, scalable payment acceptance, making it ideal for retail and other card-present industries.

With DECTA, businesses can streamline transactions, reduce costs, and enhance customer payment experiences. Learn more about our merchant account services today.