Which Industries Are Considered 'High Risk' In Processing?

The payment processing industry is known for its complexity, but this is even more true for businesses labeled as “high-risk.” Companies in this category face additional hurdles like higher fees, frozen funds, and the need to put up significant cash reserves. Many businesses don’t even realize they’re high-risk until it’s too late—when they've already encountered account rejections or excessive fees.

However, with the right guidance, businesses can navigate these challenges. At SwipeSum, we specialize in helping businesses find the best payment processors for their needs, ensuring that high-risk businesses always have a merchant account and get agreements that work in their favor.

What Is a High-Risk Merchant Account?

A high-risk merchant account is a specialized account designed to help businesses in industries with a greater likelihood of chargebacks, fraud, or regulatory issues. While each payment processor determines its own criteria, businesses that deal with card-not-present transactions or operate in regulated sectors are typically more prone to being categorized as high-risk.

Whether your business sells products online or operates in an industry facing high scrutiny, you may need to apply for a high-risk merchant account to process payments. For those unsure if their business qualifies, SwipeSum can help determine your risk profile and find the most suitable processor.

How to Get a High-Risk MID (Merchant Identification Number)

For high-risk businesses, obtaining a Merchant Identification Number (MID) is essential for processing payments. However, due to the inherent risks associated with certain industries, securing one requires a strategic approach. Moreover, relying on just one MID can put your business at risk if your account gets shut down or funds are frozen. Here's what you need to know to effectively secure and manage high-risk MIDs:

1. Secure Multiple MIDs

One of the best practices for high-risk businesses is to obtain multiple MIDs from different payment processors. This redundancy ensures that if one MID gets shut down or funds are held, your business can continue operating with minimal disruption. High-risk businesses often face account closures or frozen funds without much notice, making it crucial to have backup MIDs in place.

2. Use a Payment Gateway to Store Tokens

When setting up your payment processing system, it’s important to use a payment gateway that stores payment tokens independently from your merchant services provider. By doing so, you retain control over your payment information, even if a processor decides to shut down your MID. This prevents your customers' payment data from being held hostage by a processor, ensuring a smooth transition to another MID or processor if needed.

3. Implement Fraud Prevention with 3D Secure

Using tools like 3D Secure can significantly reduce the risk of fraud and chargebacks. 3D Secure is an additional layer of authentication for online payments, requiring the cardholder to verify their identity through a password or biometric data before completing a transaction. This not only decreases the likelihood of fraudulent transactions but also shifts liability from the merchant to the card issuer, protecting your business from chargebacks.

4. Invest in Chargeback and Fraud Prevention Tools

To maintain your MIDs, keeping chargebacks under control is vital. Tools like Ethoca by Mastercard help businesses detect fraud early and minimize chargebacks. Ethoca enables real-time communication between merchants and card issuers to resolve transaction disputes before they become chargebacks. This can significantly reduce your chargeback ratio, a key factor in keeping your MIDs active.

5. Monitor Chargeback Ratios and Compliance

High-risk businesses need to stay vigilant about their chargeback ratios. If your ratio exceeds the thresholds set by payment processors (typically 1-2%), your MID could be shut down. Implementing fraud detection, automated alerts, and robust customer service can all help reduce disputes and maintain compliance with processor rules.

By employing these strategies, your business can secure and protect multiple MIDs, ensuring continuity in your payment processing operations while minimizing risks associated with chargebacks and fraud. Working with experts like SwipeSum can help you find the right processors, implement the necessary tools, and negotiate better terms to safeguard your high-risk MIDs.

What Factors Determine If a Merchant Is High-Risk?

Businesses fall into the high-risk category for several reasons:

• Transaction Methods: Companies that handle mostly online or phone payments are vulnerable to fraud, raising red flags for processors.
• Industry Type: Certain sectors, such as CBD products, online gambling, or adult entertainment, are considered inherently risky.
• Business History: Companies with poor credit or frequent chargebacks face a higher likelihood of being classified as high-risk.
• Legal Environment: Operating in an industry with stringent regulations, like cannabis or firearms, often leads to a high-risk label.

If your business fits any of these profiles, working with an experienced consultant like SwipeSum can help you manage these challenges more effectively and secure better terms with payment processors.

How Do High-Risk Merchant Accounts Differ from Regular Accounts?

High-risk merchant accounts come with additional conditions that make them more difficult to manage compared to regular accounts:

• Longer Application Processes: High-risk businesses undergo more rigorous reviews, requiring extensive documentation about finances, business practices, and fraud prevention efforts.
• Higher Processing Fees: High-risk merchants often pay significantly higher fees, sometimes as much as 4.3% per transaction.
• Cash Reserves: Many processors require high-risk merchants to maintain reserves—funds withheld from transactions to cover potential losses from chargebacks.
• Higher Chargeback Fees: With frequent chargebacks, high-risk businesses will often pay increased fees ranging from $25 to $100 per instance.

At SwipeSum, we help businesses negotiate these terms to lower fees and eliminate or reduce reserves, ensuring you’re not burdened by these requirements.

The Most Common High-Risk Industries

Certain industries are almost universally labeled as high-risk:

• Tobacco and E-cigarettes
• CBD and Medical Marijuana
• Online Gambling and Casinos
• Adult Entertainment
• Travel Agencies

Other less obvious industries also fall into this category:

• E-commerce Businesses: Particularly those with high return rates.
• Startups: New businesses with little processing history.
• Subscription Services: Companies that bill on a recurring basis, which can lead to increased disputes and chargebacks.

Whether you’re in a well-known high-risk industry or have been unexpectedly labeled as such, SwipeSum can guide you through the process of finding a payment processor that fits your needs.

What to Do If You’re a High-Risk Business and Need a Payment Processor

Securing the right payment processor as a high-risk business can be challenging, but it’s possible with the right strategy:

• Be Transparent: Always disclose your business model and financial information upfront. Processors need to understand the nature of your business to assess risks accurately.
• Maintain Healthy Cash Flow: Demonstrating financial stability will make your business more attractive to processors.
• Reduce Chargebacks: Implementing fraud prevention tools and ensuring clear product descriptions can help minimize disputes.
• Work with Experts: SwipeSum specializes in helping high-risk businesses find processors that offer competitive fees and favorable terms, saving you time and money in the long run.

How SwipeSum Can Help High-Risk Businesses

SwipeSum offers expert advice and negotiation assistance for high-risk businesses looking for the best payment processing solutions. Whether your company is just entering the payment processing world or you’ve been rejected by previous processors, SwipeSum can help you find the right fit.

One of our most significant successes involved helping a client eliminate a $40,000 reserve requirement, freeing up crucial capital for their operations. No matter the industry or challenge, SwipeSum’s consultants are here to ensure high-risk businesses secure the best possible terms.

Recent Trends in High-Risk Merchant Services

The high-risk payment processing landscape is evolving, with providers rolling out advanced fraud detection tools and more robust chargeback prevention systems. Payment processors are also beginning to cater to industries that have traditionally been difficult to place, such as online gaming and CBD.

While some companies may offer high-risk services, SwipeSum’s personalized approach ensures you get a solution tailored to your business’s unique needs. Our team works tirelessly to reduce fees, eliminate reserves, and provide peace of mind.

FAQs about High-Risk Merchant Accounts

• What is a high-risk merchant account?
  A high-risk merchant account is a payment processing solution for businesses with higher chances of chargebacks or fraud.
• Which industries are considered high-risk?
  Industries like CBD, online gambling, adult entertainment, and e-commerce businesses with high return rates are common examples.
• How can high-risk businesses reduce processing costs?
  By working with experts like SwipeSum, high-risk businesses can find processors willing to lower fees, reduce reserves, and offer better contract terms.

The challenges of high-risk payment processing are significant, but they’re not insurmountable. With expert guidance from SwipeSum, your business can navigate the complexities of payment processing, lower fees, and reduce risks. Contact Swipesum today to learn how we can help your business thrive.