What Makes A Company High-Risk for Credit Card Processors?

Topics: Finance, Management

In today’s day and age, customers paying with credit cards are ubiquitous—and thus, for small businesses, accepting credit card should be as well.


But if you’re going to process credit and debit card transactions, you’ll need a payment system.

For some businesses, especially e-commerce ones, setting one up isn’t so easy.

Though opening any kind of business involves some degree of risk, some businesses are inherently riskier than others.

As a result, these businesses are labeled “high-risk” (as opposed to low or medium), and may face subsequent challenges when working with credit card processors.


What exactly makes a business “high-risk”?

In broad terms, a company is labeled as high-risk if it faces a large risk of financial failure or fraud.

In more specific terms, risk level for businesses is based on several factors, including:

  • Chargeback ratio
  • Credit history
  • Transaction size and sales volume
  • Industry regulation
  • Susceptibility to phishing, fraud, and identity theft


High-risk businesses are characterized by one or a combination of these criteria: a high chargeback ratio; nonexistent or poor credit history; heavy industry regulations; and a high vulnerability to fraud.

Additionally, companies that rely largely on card-not-present transactions, such as e-commerce businesses, may be labeled as high-risk given their reduced security.

This distinction in risk level is important in the merchant services industry because it helps merchant service providers (MSPs) decide whether or not to partner with businesses for payment processing.

Also known as credit card processors, these providers enable businesses to accept credit and debit cards and other forms of electronic payment.


Examples of High-Risk Industries

Businesses can also be considered high-risk by virtue of the industry they belong to, as some are inherently more risky than others (for many of the reasons previously listed). High-risk industries include, but are not limited to:

  • Adult products and entertainment
  • Airline tickets and travel services
  • Credit repair and debt collection
  • Cryptocurrency exchanges
  • Dating websites
  • E-cigarettes and tobacco
  • Firearms
  • Gambling
  • Medical marijuana/cannabis
  • Nutraceutical and dietary supplements
  • Online furniture and jewelry businesses


It’s common for businesses with age or legal restrictions to be considered high-risk, although much to their detriment, this also gives them a risque or stigmatized image.

In actuality, high-risk businesses are not dangerous or illegal.

For instance, airline tickets and travel agencies earn a high-risk label because they involve large transactions and a high rate of chargebacks, i.e., customers who’d like to cancel their flight tickets.

Compare this to a low-risk business like a company selling office supplies or pet food, which will generally involve smaller-sized transactions and face fewer chargeback scenarios.


What Being High-Risk Means for You

Many banks and merchant service providers avoid working with high-risk businesses in order to avoid legal issues that may arise from cases of identity theft or other criminal activities.

To them, it’s simply not worth the trouble to service a company that has more potential for fraud or chargebacks.

Of course, it’s still possible for high-risk businesses to obtain merchant accounts.

However, compared to their counterparts, their rates and fees are generally higher. Merchant service providers want to minimize their risk when working with high-risk businesses, after all—and that means enforcing high premiums.

Alternative Payment Channels

Fortunately, alternative lenders and online merchant service providers exist to serve high-risk businesses’ payment processing needs.

Aside from credit and debit card processing services, they often offer:

  • ACH transfers
  • E-checks
  • Remote deposit capture services
  • Quasi-cash handling


Though less conventional than using the credit card network, these payment channels are great alternatives for businesses in need of a processing solution.


Merchant Account Reserves

Some high-risk processors require a merchant account reserve. Implemented for the sake of risk management, a reserve is a withheld portion of revenue that acts as a security deposit.

Three categories of merchant account reserves exist:

  • Capped or fixed reserve - A percentage of revenue is withheld until the reserve reaches a designated amount, at which point no additional funds are withheld.
  • Rolling reserve - A percentage of revenue is withheld for a designated period of time, e.g., six months.
  • Up-front reserve - An amount of revenue is placed in escrow as soon as the processing agreement begins, though there may be flexibility on how these funds are initially provided.

Depending on the type of reserve used, the funds are eventually released to the merchant according to when certain conditions are met.



Fearing the roadblocks associated with being labeled high-risk, some business owners misrepresent their business to avoid being categorized as such.

However, this ultimately risks your future business credibility and may even result in account termination.

Consequently, it’s important to be transparent about your business; doing so will help you find the best merchant service provider for your payment processing needs in the long run.

Although there may be more hurdles, the bottom line is: you’re not out of options if your business is high-risk.


What makes a company high-risk for a credit card processor?

  1. Chargeback ratio
  2. Credit history
  3. Transaction size and sales volume
  4. Industry regulation
  5. Susceptibility to phishing, fraud, and identity theft

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 About the Author: Joyce Chou is a Content Specialist at Compose.ly, a content platform that matches businesses with seasoned freelance writers. In addition to writing for Compose.ly’s blog, she also writes about digital marketing, personal finance, and small businesses for other publications. When she’s not writing, you can find Joyce hiking the great outdoors, painting, or trying out different sports and activities.


Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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