High-Risk Merchant Accounts & Processing: A Complete Guide

Navigating the world of merchant accounts can be complex, especially when you encounter the term high-risk. Industries such as travel, gaming, nutraceuticals, and subscription services often face higher chargeback rates, sometimes exceeding the thresholds set by standard payment processors (e.g., chargebacks average around 0.89% in travel and 0.83% in gaming). These elevated chargeback ratios are primarily driven by factors such as product misrepresentation, unclear billing descriptions, and high customer turnover. For example, subscription-based businesses are common in e-commerce, MLM, or wellness coaching. As a result, businesses in high-risk sectors face more stringent underwriting processes, higher fees, and the risk of account terminations if chargeback thresholds are exceeded. Understanding these dynamics is essential for companies to manage risks effectively and maintain smooth payment processing operations. This comprehensive guide will dive into the intricacies of high-risk merchant accounts, providing insights into industry classifications, chargeback management, and strategies to mitigate risks, enabling businesses to navigate payment processing challenges with confidence.

What Is a High-Risk Merchant Account?

A high-risk merchant account is a type of payment processing account designed for businesses that operate in industries more prone to chargebacks, fraud, or regulatory scrutiny. Unlike standard merchant accounts, which typically serve low-risk businesses such as retail shops or restaurants, high-risk accounts involve stricter underwriting, higher processing fees, and additional monitoring by payment processors. The key difference lies in risk exposure. Standard accounts are approved quickly with minimal conditions because they present fewer chances of disputes or non-compliance. High-risk accounts, however, may require rolling reserves (where the processor holds a portion of funds), longer settlement times, or volume caps to protect against potential losses. Industries commonly labeled as high-risk include:

• CBD and cannabis-related products due to evolving regulations and banking restrictions.
• Firearms and ammunition sales, which face heightened compliance requirements.
• Travel and ticketing businesses, often dealing with cancellations and high refund rates.
• Gaming and gambling platforms, prone to fraud and chargeback disputes.
• Adult entertainment services, subject to reputational and compliance risks.
• Nutraceuticals and supplements, where consumer claims can result in disputes.
• Subscription-based services, which frequently encounter recurring billing chargebacks.

Being categorized as high-risk doesn’t mean a business cannot accept payments; it simply means it needs the right processing partner who can provide tailored solutions for compliance, security, and reliability.

Why Businesses Are Classified as High-Risk

Not all businesses face the same level of scrutiny when it comes to payment processing. Banks and processors evaluate risk based on industry practices, transaction behavior, and the likelihood of disputes. A merchant may be classified as high-risk for several reasons:

• High Chargeback Ratios: If a business regularly receives disputes and refund requests, it can be flagged. Industries with frequent cancellations or misleading claims often face higher chargeback rates.
• Industry/regulatory exposure: Some verticals face heightened scrutiny or complex compliance that increases operational risk, for example, CBD and firearms (strict ATF requirements for licensees and record-keeping).
• Fraud Potential: High-risk merchants are more exposed to identity, account takeover, and friendly-fraud patterns. In 2024, 79% of organizations were targeted by payment-fraud attempts, per AFP’s annual survey; merchants also incur ~$4.60 in total costs for every $1 of confirmed fraud, according to LexisNexis’ True Cost of Fraud study..
• High-ticket transactions. Larger average order values magnify exposure when disputes occur and can trigger enhanced scrutiny from acquirers. The OCC’s Comptroller’s Handbook: Merchant Processing outlines how acquirers assess merchant risk profiles and set controls for higher-risk categories and transaction characteristics.
• Recurring Billing Models: Subscription services, streaming platforms, and membership programs frequently encounter failed payments and cancellations, increasing the probability of disputes.

Ultimately, being labeled high-risk does not reflect the legitimacy of the business itself; it reflects transaction patterns and regulatory exposure that make processors cautious.

Common Challenges High-Risk Merchants Face

Running a high-risk business often means navigating payment hurdles that standard merchants rarely encounter. The very label “high-risk” comes with real operational and financial consequences that can directly impact revenue and cash flow.

• Higher processing fees: Payment processors offset their exposure by charging higher per-transaction rates and reserve requirements. For example, average credit card processing fees for standard merchants hover around 1.5–3.5%, but high-risk merchants may pay 4–7% or more, depending on the industry.
• Limited processor options: Many major banks and mainstream processors avoid certain industries altogether, leaving high-risk merchants with fewer choices. As noted in Forbes Advisor’s guide on high-risk accounts, businesses in categories like CBD, online gaming, or adult entertainment often need specialized providers that understand these sectors but charge higher fees.
• Sudden account holds or closures: A spike in chargebacks or perceived suspicious activity can trigger frozen funds or even termination of accounts without warning. Square explains that payment processors monitor risk in real-time, and when thresholds are exceeded, they may hold funds to protect against losses.
• Stricter underwriting: High-risk applicants undergo more rigorous due diligence before approval. Processors may request financial statements, rolling reserves, and ongoing monitoring to reduce their exposure. Merchant Maverick highlights that stricter underwriting is a standard safeguard in high-risk payment processing.

Together, these challenges underscore why securing the right high-risk merchant account is not only about finding a processor willing to work with your business, but also about ensuring long-term stability and growth.

How High-Risk Payment Processing Works

High-risk payment processing involves a more rigorous and structured approach compared to standard merchant accounts. The process typically unfolds in several key stages:

1. Application Submission

Businesses seeking to process payments must first submit an application to a high-risk payment processor. This application includes detailed information about the business, such as its legal structure, ownership, financial history, and the nature of its products or services. For instance, industries like CBD, online gaming, or subscription services are often classified as high-risk due to their inherent challenges.

2. Underwriting Process

Once the application is submitted, the underwriting process begins. Underwriters assess various factors to determine the level of risk associated with the business. This includes evaluating the business’s financial health, chargeback history, and compliance with industry regulations. The goal is to ensure that the business can manage potential risks effectively.

3. Approval and Account Setup

If the underwriting process is successful, the business is approved for a high-risk merchant account. This account allows the business to accept payments through various channels, including credit and debit cards, online payments, and mobile transactions. It’s important to note that high-risk merchant accounts often come with higher processing fees and may require rolling reserves to mitigate potential risks.

4. Transaction Routing and Monitoring

After account setup, transactions are processed through the payment gateway. High-risk processors implement advanced fraud detection systems to monitor transactions in real-time. These systems use algorithms and machine learning to identify suspicious activities, such as unusual transaction patterns or high chargeback rates.

High-Risk Merchant Account Fees Explained

Operating a high-risk merchant account comes with additional costs compared to standard, low-risk accounts. These fees exist to offset the higher risk of chargebacks, fraud, and regulatory scrutiny. Understanding these costs helps businesses plan their finances more effectively.

• Higher processing rates: Swipesum reports: “a low-risk business might pay around 2–3%, whereas high-risk businesses often face fees in the range of 3.9% to 5% (or even higher) of each sale. This premium helps cover potential disputes and fraud mitigation.
• Rolling reserves: Many processors require a percentage of daily sales to be held in reserve, usually 5–20%, for a defined period (e.g., 90–180 days). This ensures funds are available to cover chargebacks or refunds. Low-risk accounts rarely require reserves.
• Monthly or annual fees: Some high-risk providers charge setup fees, monthly account maintenance, gateway fees, or PCI compliance fees. These additional costs help processors maintain the infrastructure and risk management tools required for high-risk industries.
• Comparison with low-risk accounts: Low-risk accounts enjoy lower transaction fees, minimal reserves, and fewer monitoring requirements. High-risk fees are necessary to balance the higher potential liability that processors assume.

Overall, while high-risk merchant accounts are more expensive, they provide essential payment acceptance capabilities for industries that otherwise might struggle to secure processing services. Choosing the right processor can help optimize costs and minimize disruptions.

Key Features of a High-Risk Merchant Account

High-risk merchant accounts come with specialized features that help businesses manage risk, maintain compliance, and ensure smooth payment operations. Understanding these features can help merchants select the right provider for their industry.

• Fraud Prevention Tools: High-risk processors often provide advanced fraud detection and monitoring systems to flag suspicious activity in real-time. These tools reduce the likelihood of chargebacks and financial losses. Machine learning algorithms and AI-based scoring help identify risky transactions before they are processed.
• Chargeback Protection: Many high-risk accounts include chargeback mitigation services, such as automated dispute management, alerts for unusual activity, and consultation on best practices. These tools are crucial for industries prone to frequent disputes.
• Multiple Merchant ID (MID) Accounts: Some high-risk merchants benefit from having multiple MIDs, which allows for separating different product lines, regions, or business units. This reduces the risk of one high-volume dispute impacting the entire account.
• Integration Flexibility. High-risk accounts often support various payment gateways, shopping carts, and POS systems, enabling seamless integration with existing business operations. Flexible integration helps merchants maintain continuity across online and in-person channels.
• White-Glove Support. Specialized high-risk processors provide dedicated account managers to guide businesses through compliance, setup, and chargeback management. This hands-on support is particularly valuable for complex or regulated industries.

These features are essential for businesses operating in high-risk sectors, ensuring that they can process payments safely, maintain regulatory compliance, and protect revenue streams.

Payment Solutions for High-Risk Businesses

High-risk merchants often face challenges with traditional credit card processing, including higher fees, chargeback risks, and limited processor options. To overcome these obstacles, many businesses leverage alternative payment solutions that help reduce risk and costs while maintaining seamless customer experiences. Choosing the right solution can improve cash flow, protect revenue, and ensure regulatory compliance.

ACH / eCheck Payments

Automated Clearing House (ACH) or electronic check payments allow businesses to process bank-to-bank transfers directly, bypassing credit card networks. ACH transaction fees typically range from $0.26 to $0.50 (median) across most businesses, falling as low as $0.11 to $0.25 for large enterprises. ACH payments generally have lower fees than credit cards. ACH fees are among the most affordable of any payment option, typically averaging $0.20 to $1.50 per transaction. These lower fees make ACH payments particularly attractive for high-ticket or recurring transactions, such as subscriptions, B2B ACH payments, and utility bills, where credit card fees can be prohibitively expensive. This makes ACH a popular option for subscription-based services, travel bookings, and high-ticket transactions, where recurring billing can create disputes if processed through credit cards (Nacha: What is ACH).

Cryptocurrency Payments

Accepting digital currencies such as Bitcoin, Ethereum, or stablecoins enables high-risk merchants to bypass traditional banking restrictions entirely. Cryptocurrency transactions are irreversible, which eliminates chargebacks and lowers processing risk. Businesses in industries like online gaming, CBD, or adult entertainment benefit from faster settlement times and reduced reliance on conventional processors that may refuse service. While adoption requires educating customers and setting up wallets, it provides a secure, low-fee alternative for high-risk operations.

Alternative Payment Gateways

Specialized high-risk payment gateways, such as Skrill, Payline Data, or Authorize.Net, offer solutions tailored for industries that mainstream processors avoid. These gateways provide enhanced fraud monitoring, multi-currency support, and flexible integration with e-commerce platforms or point-of-sale systems. By using a dedicated high-risk gateway, businesses can avoid sudden account closures and maintain consistent payment acceptance while protecting against regulatory or operational disruptions.

Split Payment / Sub-Merchant Solutions

Platforms like Stripe Connect or PayPal for Marketplaces allow transactions to be routed through sub-merchant accounts, effectively spreading risk across multiple accounts. This setup is ideal for platforms managing multiple vendors, subscription services, or online marketplaces, as it reduces exposure for the main merchant account and simplifies compliance management. Sub-merchant solutions also help businesses track revenue streams more efficiently while minimizing the impact of disputes or chargebacks. These strategies not only protect revenue but also enhance the customer experience by offering flexible, secure, and reliable payment options.

How to Get Approved for a High-Risk Merchant Account

Getting approved for a high-risk merchant account can be challenging, but with careful preparation, businesses can improve their chances of approval and secure stable payment processing. Here’s a step-by-step guide:

Step 1. Prepare Your Financials

High-risk processors require detailed financial information to assess your business’s stability. This typically includes bank statements, profit and loss reports, and balance sheets for the last 6–12 months. Providing accurate and organized financial documents demonstrates that your business can handle potential chargebacks and large transactions.

Step 2. Reduce Chargebacks

Chargebacks are a primary reason businesses are labeled high-risk. Implementing clear refund policies, using fraud detection tools, and improving customer service can help minimize disputes. Processors look favorably on businesses that actively work to reduce chargeback ratios.

Step 3. Provide Compliance Documentation

Specific high-risk industries, such as CBD, gaming, or adult services, require specific licenses, certifications, or permits. Submitting these documents upfront shows that your business complies with legal regulations, which can speed up the underwriting process.

Step 4. Choose the Right Provider

Selecting a payment processor that specializes in high-risk accounts is critical. These providers understand your industry, offer tailored underwriting, and provide features like fraud protection, rolling reserves, and chargeback management. Working with the right provider increases your chances of approval and long-term stability.

5. Maintain Good Business Practices

Even after approval, continuing transparent financial practices, monitoring chargebacks, and staying compliant with regulations helps maintain your account in good standing. Processors often review accounts periodically, and good business practices reduce the risk of sudden account closures. By following these steps, high-risk businesses can improve their chances of approval, access reliable payment processing, and protect their revenue streams while staying compliant with industry standards.

Compliance & Security in High-Risk Payments

Operating in high-risk industries necessitates stringent adherence to compliance and security standards to mitigate fraud, ensure data protection, and maintain regulatory alignment. Below are the key frameworks and regulations that high-risk merchants must navigate:

1. PCI DSS (Payment Card Industry Data Security Standard)

PCI DSS is a set of security standards designed to protect card information during and after a financial transaction. It applies to all entities that store, process, or transmit cardholder data. Compliance with PCI DSS is mandatory for businesses handling credit card transactions.

• Key Requirements: PCI DSS outlines 12 requirements organized into six control objectives, including building and maintaining a secure network, protecting cardholder data, maintaining a vulnerability management program, implementing strong access control measures, regularly monitoring and testing networks, and maintaining an information security policy.
• Compliance Levels: Compliance requirements vary based on the volume of transactions processed annually, ranging from Level 1 (over 6 million transactions) to Level 4 (less than 20,000 transactions).
• Importance: Adhering to PCI DSS helps prevent data breaches, reduces fraud risks, and builds trust with customers.

2. KYC (Know Your Customer) & AML (Anti-Money Laundering)

KYC and AML regulations are critical in preventing financial crimes such as money laundering and terrorist financing. These regulations require businesses to verify the identity of their clients and monitor transactions for suspicious activity.

• KYC Requirements: Businesses must collect and verify information such as the customer’s name, address, date of birth, and identification documents.
• AML Compliance: Involves implementing policies and procedures to detect and report suspicious activities, conducting regular audits, and training staff to recognize red flags.
• Regulatory Bodies: Depending on the jurisdiction, businesses must comply with local financial regulatory authorities, such as the Financial Action Task Force (FATF) recommendations.

3. ISO 27001 & AS9100D (When Applicable)

For businesses in sectors like aerospace or defense, compliance with ISO 27001 and AS9100D standards is essential.

• ISO 27001: Focuses on establishing, implementing, maintaining, and continually improving an information security management system (ISMS).
• AS9100D: An extension of ISO 9001, tailored for the aerospace industry, emphasizing risk-based thinking and operational risk management.
• Application: These standards are particularly relevant for businesses dealing with sensitive government contracts or operating in regulated industries.

4. Importance of Documentation

Meticulous record-keeping is vital for demonstrating compliance and facilitating audits.

• Documentation Includes: Compliance certificates, audit trails, transaction logs, employee training records, and risk assessments.
• Benefits: Proper documentation helps in identifying vulnerabilities, preparing for regulatory inspections, and maintaining transparency with stakeholders.
• Best Practices: Implementing a centralized document management system and conducting regular internal reviews can enhance compliance efforts.

Fraud & Chargeback Risks in High-Risk Industries

High-risk industries face higher rates of fraud and chargebacks compared to low-risk sectors. This elevated risk is due to a combination of factors, including higher ticket sales, recurring billing models, regulatory scrutiny, and the digital nature of transactions. Fraudulent activities can include stolen card usage, friendly fraud (customers disputing legitimate charges), and account takeover attacks.

Strategies for Fraud Prevention

1. Address Verification System (AVS)

AVS verifies the billing address provided by the customer against the one on file with the card issuer. This simple check can reduce fraudulent transactions and prevent many chargebacks.

2. 3D Secure Authentication

3D Secure (e.g., Visa Secure, Mastercard Identity Check) adds an additional layer of authentication during checkout, requiring customers to verify their identity. This reduces the risk of unauthorized transactions and transfers liability for certain types of fraud to the issuing bank.

3. Fraud Filters and Machine Learning Tools

High-risk merchants can deploy advanced fraud filters and AI-based tools that analyze transaction patterns in real-time. These systems flag suspicious activity, such as multiple high-value purchases from the same IP address, unusual shipping addresses, or rapid repeat purchases.

4. Clear Refund and Return Policies

Transparent policies reduce friendly fraud by setting customer expectations and providing a clear process for disputes, which also helps maintain lower chargeback ratios. By implementing these strategies, high-risk merchants can minimize the impact of fraud, reduce chargeback rates, and maintain a healthier merchant account, improving long-term stability and profitability.

Benefits of Working With a Specialized Provider

High-risk merchants often struggle to find reliable payment processors through mainstream platforms like Stripe or Square, which typically restrict high-risk industries or impose sudden account holds. Working with a specialized high-risk payment provider offers several critical advantages:

1. White-Glove Service: Specialized providers offer dedicated account managers who guide merchants through underwriting, compliance, and account setup. This personalized approach ensures that documentation is correctly submitted, risk factors are mitigated, and chargebacks are proactively managed.
2. Faster Approvals: High-risk industries face longer approval times with general processors due to manual reviews and strict policies. Specialized providers streamline the process by understanding the nuances of your industry.
3. Industry Expertise: High-risk payment providers have deep knowledge of specific sectors like CBD, adult entertainment, travel, or gaming. They understand compliance requirements, chargeback patterns, and best practices, ensuring that your account remains in good standing while maximizing revenue.
4. Scalability: Specialized providers support multiple merchant IDs, international payments, recurring billing, and high transaction volumes, allowing your business to grow without constantly switching processors.
5. Advanced Fraud & Chargeback Protection: High-risk providers offer robust fraud detection, chargeback mitigation, and risk monitoring tools. These features help businesses minimize losses and maintain stable merchant accounts, which is often not available with general-purpose processors.

By choosing a specialized provider, high-risk businesses gain stability, compliance support, and operational flexibility, ensuring long-term growth and reduced financial risk.

Case Studies: High-Risk Businesses Getting Approved

High-risk merchants often face significant obstacles when trying to secure reliable payment processing. The following mini case studies illustrate how businesses from different industries successfully overcame these challenges with specialized high-risk payment providers.

Case Study 1: CBD Retailer

A mid-sized CBD retailer struggled to process online payments due to frequent account freezes with mainstream processors. By partnering with a high-risk payment provider, the business implemented ACH payments and a dedicated fraud monitoring system, reducing chargebacks and increasing sales by 29% within three months. The provider also assisted with license verification and PCI DSS compliance, enabling the retailer to maintain uninterrupted payment acceptance.

Case Study 2: Online Sweepstake Company

A fast-growing online sweepstakes company, which generates $27 million in annual player spend (with over 10,000 active players and 70,000+ monthly transactions), experienced a critical disruption when its existing payment provider suddenly shut down their account. They were left offline for 24 hours with no fallback. Submit to a high-risk provider, they rapidly underwrote and registered a new merchant account within five business days, a process that often takes 30+ days.

Case Study 3: Adult Subscription Service

A subscription-based adult content platform experienced high chargeback rates from friendly fraud and international customers. The company switched to a high-risk payment gateway that offered 3D Secure authentication, AVS checks, and customer verification procedures, which helped reduce chargebacks and improve compliance. The provider also offered white-glove support, guiding the company through compliance and documentation requirements for multiple jurisdictions. These case studies highlight how tailored solutions from specialized high-risk providers enable businesses across different industries to overcome payment obstacles and reduce fraud.

Frequently Asked Questions

What industries need a high-risk merchant account?

Industries with elevated fraud or regulatory risk typically need high-risk accounts, including CBD, firearms, gaming, travel, adult entertainment, supplements, and online dating.

How long does approval take for high-risk accounts?

Approval usually takes 48 hours to 2 weeks, depending on documentation, industry complexity, and the processor’s underwriting process.

Why are fees higher for high-risk merchants?

Higher fees offset chargeback risk, fraud potential, regulatory compliance requirements, and specialized support offered by high-risk processors.

Can high-risk businesses use ACH or crypto?

Yes, ACH/eCheck and cryptocurrency reduce transaction fees, lower chargeback risk, and bypass restrictions from traditional credit card processors.

How do I reduce chargebacks as a high-risk merchant?

Implement clear billing descriptors, transparent refund policies, fraud filters, AVS, and 3D Secure authentication to prevent disputes and unauthorized transactions.

Grow Your High-Risk Business with Reliable Payment Solutions

High-risk merchant accounts play a crucial role in enabling industries like CBD, firearms, gaming, and adult services to operate securely and efficiently. These accounts address unique challenges such as high chargeback rates, fraud risk, and strict regulatory compliance, providing tailored solutions that mainstream processors often cannot offer. By understanding the requirements, maintaining compliance, and implementing fraud prevention measures, businesses can process payments reliably, reduce operational risk, and build customer trust, ensuring long-term stability and growth. For businesses seeking a dependable partner, 2Accept offers specialized high-risk merchant account services tailored to industries like CBD, firearms, and gaming. Their expertise in compliance, chargeback management, and payment security ensures a smooth onboarding process and ongoing support, helping high-risk businesses focus on growth without worrying about payment disruptions.