Did you know that your business could be classified as a high risk merchant account? 

When you accept credit and debit card transactions from your customers, a provider like PaySimple will process them and deposit them into your bank account. You pay a transaction fee each time this happens, but did you know that not all businesses pay the same fees? That’s because payment processors divide businesses into two categories: low risk merchant accounts and high risk merchant accounts.

When you apply to open a merchant account, you will be classified as either a low or high risk merchant account. A high risk merchant account is considered at greater risk of chargebacks and fraud, which is why payment processors try to protect against this by charging high risk merchant accounts higher fees and offering more restrictive contract terms.

But what exactly is a high risk merchant account, and what happens when your payment processor deems you to be a high risk merchant account? Here’s what you need to know.

What Is a High Risk Merchant Account? 

If your payment processor determines you to be at greater-than-average risk of chargebacks or fraud, you can be classified as a high risk merchant account. This impacts how much you will have to pay to accept credit and debit card purchases from customers. In general, low-risk merchant accounts can negotiate better pricing terms and access lower processing fees per transaction.

o flag high risk merchant accounts, payment processors will often use your tax information, business financials, and a credit check to determine whether you fall into that category.


How Do Payment Processors Decide What Is a High Risk Merchant Account?

You may be labeled as a high risk merchant account if:

  • You have a poor personal credit score
  • Your company’s finances are not in good standing
  • You have a financial history of chargebacks or fraud
  • You are a newer business without an established financial history
  • Your business address is different from where you actually do business (for example, you operate from overseas)
  • You sell products and services in high-risk geographic regions
  • You provide risky or questionable products and services. Everything from online gaming and firearms to adult entertainment and pharmaceuticals can be a potential red flag.
  • You sell particularly expensive products and services

What Happens If You’re Designated as a High Risk Merchant Account?

Financially, it’s in your best interest to avoid being given a high risk merchant account. Of course, each payment processor has slightly different standards for determining what qualifies as “high risk,” so while one may label you as risky another may not. 

If you are given the status of a high risk merchant account, you will likely have to:

  • Pay higher fees per transaction
  • Sign a long-term contract locking in favorable rates for your payment processor
  • Pay higher chargeback fees when a customer requests a chargeback
  • Agree to automatic contract renewals or early termination fees
  • Allow your payment processor to temporarily keep a portion of your sales in reserve to protect against fraud
  • Accept that your payment processor can freeze or terminate your account if they detect unusual processing patterns or risky behavior

How Can You Avoid Being Classified as a High Risk Merchant Account?

While you can do some things to avoid being classified as a high risk merchant account, these are interventions you’ll need to invest in over time. For instance, you can take steps to increase your credit score and protect yourself against chargeback fraud. Invest in building up a positive merchant account history over time, and the scales will gradually begin to shift in your favor. In the meantime, you may have to accept less favorable terms while you build up a positive account history.