Challenges High-Risk Merchants Face Today

High-risk merchants are businesses that payment processors classify as more vulnerable to chargebacks, fraud, or regulatory scrutiny. This category often encompasses industries such as subscription services, travel, CBD, online gaming, and adult entertainment. For these businesses, securing stable payment processing is not just tricky; it’s often a barrier to growth. Regulators like the Federal Deposit Insurance Corporation highlight that many payment processors work with merchants engaged in deceptive or illegal practices, making a large share of online businesses high-risk. This leads to stricter scrutiny, frequent rejections, and higher processing fees for businesses flagged as risky. Being labeled high-risk affects access to merchant accounts, increases operating costs, and raises compliance burdens. In this article, we’ll break down the most significant challenges high-risk merchants face in payment processing today, helping business owners understand what to expect and how to navigate these obstacles more effectively.

Why High-Risk Merchants Struggle With Payment Processing

Payment processing is the lifeblood of any business, but the barriers are significantly higher for merchants classified as “high-risk”. Classification is not always about misconduct; it’s often about how banks and processors perceive specific industries. Businesses dealing in subscriptions, travel bookings, online gaming, CBD, or adult entertainment are flagged because they statistically experience higher chargeback rates, stricter regulatory oversight, or greater fraud exposure. The difficulty comes from three interconnected forces:

• Industry regulations that impose extra requirements.
• Higher fraud and chargeback risks raise liability for processors.
• Processor risk aversion, where traditional providers prefer to avoid complexity altogether.

These factors create a payment environment where high-risk merchants must work harder, pay more, and prepare for constant scrutiny.

Common Challenges for High-Risk Merchants

The challenges outlined below impact cash flow, customer relationships, and long-term sustainability. Understanding them in detail allows merchants to anticipate risks and implement safeguards.

Higher Processing Fees & Rolling Reserves

The most immediate pain point for high-risk merchants is the elevated cost of payment acceptance. Standard merchants often pay 1.5–3.5% per transaction in processing fees, while high-risk merchants are routinely charged 3.49%–3.95%, depending on the industry and provider. This means that for every $100,000 in monthly sales:

• A standard-risk merchant might pay $2,400 in fees.
• A high-risk merchant could pay $4,000–$5,000 in fees.

Beyond fees, processors also impose rolling reserves, withholding 15% of revenue for up to six months as protection against chargebacks. This creates severe cash flow challenges, particularly for small businesses that require capital for inventory and payroll. Takeaway for merchants: Shop for specialized high-risk merchant account providers that offer lower reserves and transparent fee structures. Optimizing chargeback prevention can also reduce reserve requirements. You can find more details on how to manage payment processing fees in How to Reduce Chargebacks in High-Risk Industries.

Difficulty Getting Approved for Accounts

For high-risk merchants, the approval process can be a daunting challenge. High-risk applicants undergo rigorous underwriting, unlike standard businesses that can get instant approvals with providers like Stripe or Square. Banks and processors want detailed information such as:

• Business licenses and incorporation records.
• Past processing history and chargeback ratios.
• Financial statements and forecasts.
• Industry-specific permits (e.g., CBD compliance documentation).

This extra scrutiny significantly slows down the onboarding process. A traditional merchant might be approved in hours, but a high-risk merchant may wait multiple days for review. The delays can be especially damaging for startups. A subscription box company, for instance, may miss its launch date simply because it couldn’t secure a payment gateway in time. Businesses in industries like travel and CBD often find value in working with a specialized high-risk payment gateway that understands their compliance needs. Takeaway for merchants: Preparing thorough documentation upfront and working with providers experienced in high-risk underwriting can improve approval odds and reduce delays.

Limited Processor & Bank Options

One of the most challenging realities is that many mainstream processors are unwilling to serve high-risk industries. PayPal, Stripe, and Square, for example, specifically prohibit specific verticals like adult services, firearms, CBD, and online gambling. This leaves merchants with a narrow set of choices. Fewer providers create several challenges for high-risk merchants. They have less negotiating power regarding fees and reserves. They also face fewer integration options with shopping carts and online platforms. Finally, they are more vulnerable if a single processor were to terminate their account suddenly. Imagine a travel agency that is dependent on a single, specialized processor. If that partner suspends services due to sudden risk concerns, the agency could lose its ability to accept payments overnight. Takeaway for merchants: Diversify by maintaining multiple merchant accounts or backup processors. This redundancy ensures continuity in the event that one account is frozen or closed.

Frequent Account Holds & Sudden Closures

Even after approval, the relationship with processors can be fragile. Many high-risk merchants experience account holds when processors flag unusual patterns, such as a spike in transaction volume, international card use, or an increase in refunds. Funds can be frozen for 180 days during the investigation, crippling working capital. Sudden account terminations are another frequent problem. Providers may close accounts with little notice, citing “excessive risk” or “compliance concerns.” According to industry surveys, nearly one in four high-risk merchants report having had at least one payment account shut down unexpectedly in the past three years. Takeaway for merchants: Monitor transaction trends proactively, communicate openly with providers, and maintain emergency backup accounts to avoid total shutdowns.

High Chargeback Ratios

Chargebacks are the Achilles’ heel of high-risk industries. Card networks, such as Visa and Mastercard, generally flag merchants whose chargeback ratio exceeds 1% of transactions. Unfortunately, industries such as travel, online gaming, and subscription services often exceed this threshold due to the nature of their business.

• Travel: 1.93% average chargeback rate.
• Subscriptions: prone to disputes over forgotten renewals.
• Gaming: higher fraud exposure due to digital goods.

The financial impact is severe. Merchants lose $2.40 for every $1 disputed, when factoring in lost sales, fees, and penalties. Mastercard further estimates that global fraudulent chargebacks will cause $15 billion in losses by 2025. Takeaway for merchants: Invest in fraud detection tools, establish clear refund policies, and develop effective customer communication strategies to prevent disputes from escalating.

Compliance & Regulatory Burdens

Compliance is another significant weight on high-risk merchants. Key requirements include:

• PCI DSS: Global data security standards requiring encryption, secure storage, and annual audits.
• KYC/AML: Merchants must verify customer identity and report suspicious activity.

Industry-specific rules:

• CBD sellers must comply with FDA disclaimers and implement age verification.
• Firearms require adherence to federal and state licensing.
• Gambling platforms must comply with multi-jurisdictional gaming boards.

International standards: In the EU, PSD2’s Strong Customer Authentication (SCA) requires multi-factor authentication for online transactions. Non-compliance can lead to fines, account termination, and even legal prosecution. For larger high-risk businesses, maintaining compliance costs can easily reach tens of thousands of dollars annually, particularly when operating across multiple countries. Takeaway for merchants: Partnering with payment providers that offer compliance support and staying updated on regulatory changes reduces exposure to penalties and business interruptions.

Impact of These Challenges on Businesses

The challenges that high-risk merchants face are not abstract hurdles. They translate into measurable financial losses, long-term brand risks, and barriers to growth. Understanding these impacts is critical for business owners seeking to prepare and adapt.

1. Lost Revenue

Chargebacks, frozen funds, and higher processing fees can quickly drain revenue. The global chargeback losses are projected to reach $117.47 billion by 2023 when accounting for expenses, merchandise, and operational costs. U.S. merchants alone are expected to face over $15.3 billion in direct chargeback losses by 2026. What makes this more alarming is that only 45% of chargeback disputes are won by merchants, leaving 55% as permanent losses. Beyond disputes, high processing fees consume margins. When revenue is restricted, businesses struggle to fund inventory, cover payroll, or invest in growth. Even if sales increase, restricted cash flow creates instability that prevents scaling.

2. Damaged Reputation

Reputation is fragile in high-risk industries. Customers expect seamless payment experiences, and any disruption, such as declined cards, delayed refunds, or sudden service suspensions, undermines trust. Studies show that 32% of customers will abandon a brand after just one negative experience. The potential reputational fallout is amplified for high-risk merchants, where disputes or delays are more common. Consider a subscription service that suffers frequent billing disputes. Negative online reviews accumulate quickly, discouraging new sign-ups. Even minor payment issues can lead to long-lasting brand damage in industries like travel or CBD, where consumer trust is already cautious.

3. Growth Limitations

High-risk merchants also face restrictions on expansion opportunities. Limited processor choices mean fewer integration options with platforms like Shopify or WooCommerce, making it harder to scale into new markets. Regulatory hurdles add further delays. For example, a CBD company that wants to sell internationally may face rejection from major card networks and must navigate conflicting rules across jurisdictions. Similarly, a gaming platform may be restricted from offering recurring billing models because providers consider subscriptions too risky.

How High-Risk Merchants Can Overcome These Challenges

The good news is that these obstacles are not insurmountable. High-risk merchants can protect revenue, strengthen their reputation, and unlock growth by implementing strategic solutions tailored to their needs.

1. Choose a Specialized Provider

Generalist processors like PayPal or Stripe typically reject high-risk verticals, leaving businesses stranded. Instead, merchants should seek specialized high-risk merchant account providers. These providers:

• Understand industry-specific compliance requirements (CBD, gaming, adult, travel).
• Offer flexible rolling reserve structures.
• Provide dedicated support to handle disputes and regulatory changes.

For example, some specialized providers allow reserves to be reduced after six months of positive performance, easing cash flow pressure. Others offer multi-currency settlement to help merchants expand globally without needing separate accounts in each country. Action tip: When evaluating providers, compare contract terms carefully. Look beyond fees: examine reserve percentages, dispute support, and integration compatibility with your e-commerce stack.

2. Adopt Chargeback Mitigation Tools

Chargebacks are one of the biggest drains on profitability. Reducing them requires a proactive, multi-layered approach:

• Explicit billing descriptors: Ensure customers recognize transactions to avoid confusion.
• Automated alerts: Services like Visa’s Rapid Dispute Resolution notify merchants of real-time disputes.
• Refund-before-chargeback policies: Offering fast refunds can prevent escalation.
• Chargeback management platforms: Tools like Chargeback.io or Ethoca automate representations and boost win rates.

According to industry analysis, effective dispute management can reduce chargeback rates by 30–40% over time. Action tip: Track chargeback ratios monthly. If they approach card network thresholds (around 1%), implement additional safeguards immediately.

3. Diversify Payment Methods (ACH / eCheck / Crypto)

Overreliance on card networks leaves merchants vulnerable. Diversification reduces dependency and broadens customer options.

• ACH and eCheck: Often carry lower processing fees than cards and are less prone to chargebacks.
• Crypto payments: Provide irreversible transactions, lowering chargeback risk, and appeal to international customers.
• Digital wallets and local methods: Expand acceptance in regions where cards are less common.

Action tip: Offer at least three payment methods at checkout. Test different combinations to see which yields the highest approval and conversion rates.

4. Maintain Strong Compliance Records

Compliance often decides whether a merchant can sustain operations long-term. Staying ahead requires discipline and ongoing monitoring:

• PCI DSS: Implement regular security scans and self-assessments.
• KYC/AML: Maintain accurate customer records and flag unusual activity.
• P2PE Encryption: Secure cardholder data to reduce fraud risk.
• Industry-specific compliance: CBD merchants must ensure FDA-compliant labeling, while travel agencies must comply with Department of Transportation refund rules.

Action tip: Designate a compliance officer or use a third-party compliance service to monitor and update policies regularly.

Frequently Asked Questions

Why do high-risk merchants pay higher fees?

High-risk merchants pay higher processing fees because banks and payment processors view them as more likely to experience fraud, chargebacks, or regulatory scrutiny. To cover these risks, providers raise transaction costs.

Can high-risk merchants use PayPal or Stripe?

In most cases, no. Platforms such as PayPal and Stripe have strict risk policies and typically avoid industries like CBD, gambling, adult content, or travel. Even if a high-risk merchant is accepted initially, the account is at constant risk of being frozen or terminated once flagged as high risk.

How can high-risk businesses reduce chargebacks?

Proactive fraud prevention and transparent customer communication are the best ways to reduce chargebacks. Using recognizable billing descriptors ensures customers can identify charges on their statements. Fraud detection tools, such as 3D Secure authentication, help block suspicious transactions before they are approved. At the same time, transparent refund and cancellation policies reduce the likelihood of disputes escalating into chargebacks.

Are rolling reserves always required?

Rolling reserves are not mandatory for every high-risk merchant, but are common. A processor may hold back a percentage of daily sales, usually between 5% and 10%, for three to six months to cover possible losses from fraud or chargebacks. Whether a reserve is required depends on the industry, transaction volumes, and the merchant’s processing history.

What payment options work best for high-risk merchants?

High-risk merchants often rely on alternatives beyond traditional credit card processors for stability. ACH and eCheck payments provide lower-cost electronic transfers, cryptocurrency offers global reach and reduced chargeback risk, and specialized high-risk gateways ensure smoother approvals. Choosing the right mix of these methods helps merchants maintain steady cash flow despite the restrictions of mainstream providers.

What does it mean when an account is susceptible to high risk?

When a merchant account is labeled as susceptible to high-risk, it means the business is more likely to face issues such as high chargeback rates, fraud, or regulatory challenges. This often applies to industries like travel, gaming, subscription services, or CBD, where transactions are more complex and customer disputes are more common. As a result, processors may apply stricter approval requirements, higher fees, or additional monitoring.

Take Control of Payment Processing Challenges with 2Accept

High-risk merchants face unique hurdles that can directly impact their ability to grow and thrive. These challenges make it difficult to maintain consistent revenue, from higher processing fees and rolling reserves to frequent account holds, sudden closures, and a constant risk of chargebacks. In addition to strict compliance requirements and limited processor options, it becomes clear why so many businesses struggle to find stability in payment processing. At 2Accept, we specialize in delivering tailored high-risk merchant account solutions designed to minimize risk, streamline approvals, and protect your business against unnecessary disruptions. Explore how 2Accept can help you overcome these challenges and build a secure foundation for long-term success. Learn more about our High-Risk Merchant Accounts today and take the next step toward sustainable growth.