High-Risk Vs. Low-Risk Merchant Account: Pricing Differences

Virtually every business knows they need access to a high-quality merchant account processor. These payment processors must work with a business and credit card company to ensure that a business gets their money and a credit card company is accurately billed. All businesses must pay a fee to access these services.

The challenge for some businesses is that they are classified as high-risk merchants. Being classified as a high-risk merchant means the business will have to pay added fees, meet additional requirements, and may be unable to access certain services. Companies in these fields still need access to merchant services and card payments to survive, but it may be challenging for these types of businesses to get credit card services if they are considered high risk. If you need access to these services, you would unquestionably benefit from using a high-risk merchant like Zenti.

Why is there a price difference?

High-risk merchant accounts are priced differently than low-risk accounts because these high-risk businesses require more services that may cost money. They also present more risk to payment processors, who charge higher fees to offset this.

To better understand why high-risk merchant accounts are priced differently than low-risk accounts, you must understand the difference between high-risk and low-risk businesses.

Low-risk businesses are considered “standard” within the payment processing world. These are businesses with average sales volume, transaction volume, etc.

Examples of low-risk stores might include:

• Retail shops.

• Convenience stores that don’t sell controversial products, such as alcohol, cigarettes, or CBD.

• Book stores.

• Restaurants.

• Department stores.

They’re unlikely to have high chargeback ratios and are no more likely than any other business to be accused of fraud. They also don’t have any exceptionally high governmental regulations on their industry.

A high-risk business will be the opposite. High-risk companies are likely to have:

• Higher transaction volumes.

• Higher levels of chargebacks, refunds, or transaction amounts.

• Participation in high-risk industries.

• Extensive regulatory controls due to reputational issues.

High-risk businesses are also more likely to have returns, refunds, and chargebacks. This high level of chargebacks means merchant account processing will require more work, resulting in higher fees to cover these expenses.

Low-risk accounts usually benefit from lower prices because they demand less work from payment processors. They typically have:

• Lower transaction volumes and low sales. This leads to a reduced risk of chargebacks and refunds.

• They participate in low-risk industries. A low-risk industry has fewer chargebacks and low sales volumes.

• The industry in question does not have any specialized governmental controls. For example, a book store simply follows general business laws in the state and community. In contrast, a store that sells alcoholic products will have various industry-specific laws to which they must adhere.

The lower risk means a merchant account processor will have less work to do with a particular industry, leading to less time, fewer resources, and less possibility of financial loss associated with the particular account. This means they charge less.

What is a chargeback?

Chargebacks can mean big problems for any business or payment company. A chargeback occurs when a customer returns a purchase and seeks a full refund on their credit or debit card. A processor must then issue a refund. Chargebacks can get expensive for the payment processor, and the business usually must pay chargeback fees.

Having a chargeback ratio that’s too high — meaning too many refunds — will likely mean a business must use high-risk merchant account providers to process credit cards.

What businesses are usually considered high-risk?

There is no set legal definition for high-risk. Businesses can be labeled high risk for many reasons.

Businesses with High Sales Volumes

Businesses with heavier sales volumes are more likely to have sales that require refunds and thus chargebacks. Businesses in these areas typically don’t have the negotiating or processing power of larger chains. They include:

• Private airlines

• Travel agencies

• Property management businesses

Businesses With Reputational Challenges

Some businesses deal in areas related to sex, prescription drugs, alcohol, or other substances. They may be legitimate businesses, but bad actors have unfortunately destroyed the reputation of an industry. Examples include:

• Online pharmacies

• Adult services or escort services

• CBD Sales

• Sales of vaping or e-cigarettes

• Credit repair businesses

• Nutraceuticals

Working in an industry that falls into this category can be frustrating for a merchant, as it may imply that there’s something wrong with your perfectly legal business. Unfortunately, industry challenges can prevent a merchant account provider from catching up to the new legal system, making it difficult for a company in this industry to gain access to the financial services they need.

Businesses With High Levels of Refunds, Fraud, or Chargebacks

There is no doubt that some businesses are in industries where fraud, refunds, and subsequent chargebacks are likely. Even when a merchant runs an honest, law-abiding company, the business may be in a high-risk category due to the type of products or services. Higher chargebacks will make a merchant account provider less willing to take on the risk of working in these economic sectors. Some may be willing to take on the risk but will only do so at a higher price. In these instances, you’ll need to find a merchant account provider, like Zenti, who has specialized experience in working with high-risk businesses and industry-specific experience in an array of high-risk business categories.

Examples include:

• Businesses that deal in foreign currencies, like Forex

• Multi-level marketing businesses

• CBD Sales

• Pawn shops or other retail stores where fraud is more likely thanks to less-than-robust security measures

How will being a high-risk merchant impact my business?

If you’re asking why high-risk merchant accounts are priced differently than low-risk accounts, you already know that being a high-risk business may create problems for your business model. As a high-risk business, you’ll pay more, suffer more service delays, and potentially lose access to some types of services. These issues will be exacerbated if you work with a payment provider who doesn’t specialize in working with high-risk vendors.

Some of the issues a high-risk merchant will face include:

• Higher processing fees on transactions, chargebacks, and more.

• Higher rolling reserve requirements. All businesses must keep a reserve with their merchant account provider to cover chargebacks. Due to higher chargebacks, high-risk businesses must have higher rolling reserves.

• Higher paperwork requirements. If you’re a high-risk business, you may find that opening a merchant account is not easy. You’ll have to provide extensive information, including credit history, credit score, personal financial statements, bank statements, and much more.

All of this helps further the idea that your high-risk business needs a payment processor who understands high-risk businesses and has the experience to help them set up accounts that work for them. You’ll need a merchant account processor, like Zenti, who understands how difficult it can be for a business to struggle to get the information necessary to set up a high-risk account and has developed specific techniques to reduce your costs.

What can my business do to lower its risk and fees?

Every business has a different pathway to keeping its fees and chargebacks as low as possible. What works for an e-commerce business may not work for a brick-and-mortar business. However, there are some steps every business can take to reduce fees and risk and save the business money. It may even keep your business from being classified as a high-risk business.

First: Every business needs to take steps to reduce chargebacks. Here are a few to consider:

• Be transparent about what someone is buying and what your return policies are.

• Seek alternatives to traditional returns, like offering gift cards instead of full refunds.

• Ensure you provide a good description of what merchant account products you sell. A complete description can prevent someone from getting confused when they see a charge on your statement.

• Have robust security measures in place, thus preventing unauthorized use of credit cards. You must keep up to date with your business’s latest security standards. At Zenti, we can help you install appropriate software and ensure your security is as up-to-date as possible.

Second: Work with a merchant account processor who understands your needs and the specific services you may ask for. If you’re a high-risk business, you need a high-risk payment processor, like Zenti, who understands your specific challenges and can provide you with various services you need.

Third: Ask. You may be wondering why high-risk merchant accounts are priced differently than low-risk accounts and what you can do to change your high-risk designation or reduce charges. You might be surprised how many businesses fail to ask their merchant account provider for assistance in lowering their fees and ensuring they do everything they can to keep fees low and minimize risk. A good vendor can work with a business to confirm they’re doing everything possible to reduce risk and fees.

What other payment processing services might my high-risk business need? 

For many reasons, a high-risk business may need a broader array of services than a low-risk business. Sometimes, the need for new services may be specifically related to a high-risk business’s industry. For example, an online pharmacy will unquestionably need access to a high-risk payment gateway that can be easily integrated with its website. In other cases, a business may need a high-risk service to provide more options to customers or save money.

Regardless of the reasoning, a high-quality merchant account provider should ensure that a business has the right services. Some examples of these services include:

• High-risk payment gateway: If you operate an internet-based business, you need a payment gateway to take credit and debit cards. In most industries, this is not negotiable. Fortunately, these services are relatively common. However, you must ensure robust security and proper protections, as it can be far too easy for someone to make an unauthorized purchase on the internet.

• Cryptocurrency gateway: Cryptocurrency is becoming an increasingly popular method of paying for goods and services. Some industries may rely more on cryptocurrency payments than others. For example, suppose your business would benefit from accepting crypto payments. In that case, you’ll need an exceptional service allowing you to take payments in any cryptocurrency.

• Offshore merchant accounts: As noted above, dealing extensively with sales in foreign countries can automatically make life more difficult for businesses. In addition, depending on the country, you may suffer higher fraud rates and incur more chargeback fees. In these instances, it may be worth it for your business to enroll in an offshore merchant account. Whether the country is Canada, Mexico, Japan, or any other, you can save money by registering in this type of account.

• ACH Payment Processing: ACH payment processing is an advantageous payment method that allows your bank to conduct a sweep of another bank account, automatically withdrawing a predetermined dollar amount. This automation can be beneficial in instances with extensive recurring payments, like subscription-based services. These cheap payments often replace the need to manage expensive paper checks.

• EBT Merchant Services: EBT stands for electronic benefits transfer. They allow lower-income individuals to afford various vitally needed services, including food. These transfers come directly from the government. Depending on your business and the clientele you serve, you may benefit from adding EBT acceptance to your merchant account services.

The Zenti Advantage

As you can see, there are several reasons why high-risk merchant accounts are priced differently than low-risk accounts. Thankfully, there are also ways a high-risk merchant can reduce their fees, better protect their customer’s data, and ensure they always have access to the payment processing services they need. At Zenti, we’ve spent years working with high-risk merchants, serving as one of the leading high-risk payment processors in the country. This means we have the expertise to help your business succeed and thrive.

Want more information? Contact Zenti today, and learn more about how we can help with your business needs.