Understanding High-Risk Merchant Accounts – Lightspeed

Whether you’re starting up your first online shop, or growing a well-established ecommerce business, sooner or later you might come across an intimidating term: high-risk merchant account. 

But what is a high-rich merchant account? To put it gently, this is what banks, payment processors and card networks call businesses they’re a little worried about serving. 

But “high-risk” doesn’t have to mean low sales or low profit. You can still grow and exceed customer expectations. Let’s dive into what it means for your business.

What is a high-risk merchant account? 

A high-risk merchant account is a type of payment processing account designed for businesses that are more likely to experience chargebacks, fraud or regulatory scrutiny. These businesses operate in industries that payment processors deem risky due to high transaction volumes, subscription-based models or other factors that could lead to financial instability.

Companies categorized as high risk may face stricter requirements, such as higher processing fees, rolling reserves and enhanced fraud prevention measures. While obtaining a high-risk merchant account can be more challenging, it ensures that businesses operating in sensitive industries can still accept payments securely and efficiently.

Do we qualify as a high-risk merchant account?

Many providers will have a list of activities or business types that they deem to be high-risk, so it’s important to find out if your company falls into one of these categories. 

Businesses that fall into the high-risk category often share common traits, including:

• A history of frequent chargebacks or refunds
• Operating in an industry prone to fraud or legal scrutiny
• High average transaction values or monthly sales volumes
• Subscription-based billing models
• A business model involving international transactions

Understanding where your business stands can help you prepare for the additional requirements associated with high-risk merchant accounts and ensure you choose the right payment processor to support your operations.

How do high-risk accounts differ from regular accounts for payment processors?

High-risk merchant accounts differ significantly from regular merchant accounts in terms of fees, approval processes and risk management. Businesses classified as high risk often face higher payment processing fees due to the perceived likelihood of chargebacks and fraud. These fees can include higher interchange rates, rolling reserves (where a portion of revenue is held as a safeguard) and additional penalties for exceeding chargeback thresholds.

The approval process for high-risk merchants is also more stringent. Payment processors conduct in-depth reviews of financial statements, business history and industry classification before granting approval. This can result in longer application timelines and additional compliance requirements, such as stricter fraud prevention measures and reporting obligations.

Risk management is another key differentiator. High-risk merchants must implement enhanced security measures, such as fraud detection tools and chargeback prevention strategies, to maintain their payment processing capabilities. This is why partnering with a payment processor that understands high-risk businesses is essential.

Lightspeed Payments offers built-in fraud prevention tools and compliance support, helping businesses manage the challenges of high-risk merchant status while maintaining a smooth payment experience.

What happens after retailers are deemed ‘high-risk’?

Once a business is classified as high risk, several outcomes can follow:

• Higher processing fees: Payment processors impose increased transaction fees to offset potential risks.
• Rolling reserves: A portion of sales revenue may be withheld to cover potential chargebacks.
• Stricter compliance monitoring: Regular audits and fraud detection measures become a requirement.
• Limited payment processor options: Some providers may refuse to work with high-risk businesses, making it essential to find a specialized merchant account provider.

Despite these hurdles, the right payment processor can help mitigate risks and ensure stable, efficient payment processing.

Advantages and disadvantages of high-risk accounts 

While high-risk merchant accounts come with challenges, they also offer unique opportunities.

Aspect	Advantages	Disadvantages
Payment processing	Allows businesses to accept payments even if rejected by traditional banks or low-risk processors.	Higher processing fees to mitigate risk, reducing profit margins.
Revenue potential	High-risk industries often serve niche markets with strong demand, leading to significant sales growth.	Rolling reserves may be required, where a percentage of revenue is held back for chargebacks.
Flexibility	Specialized services like multi-currency processing, global transactions, and fraud prevention tools.	Stricter compliance requirements, including fraud prevention and chargeback monitoring.

Pro tip: But high-risk merchants can still thrive with the right payment processor. Lightspeed Payments provides a secure, scalable solution with fraud detection tools and 24/7 customer support, ensuring businesses can focus on growth rather than payment hurdles.

How can high-risk merchant accounts find payment processors?

It takes a little bit of extra effort for businesses to secure a payment processing partner when they are considered high risk, but the task is far from impossible. Here are key steps to take:

1. Know your own risk factors

Understanding what makes your business high risk helps you find a provider equipped to handle your industry’s challenges.

2. Gather your financial statements

Payment processors often require financial history, proof of business stability and chargeback ratios to assess risk levels.

3. Be transparent from the start

Clearly communicate your business model, transaction types and industry risks to potential providers to avoid surprises during the approval process.

4. Check fees and security standards

Compare processing fees, fraud prevention measures and compliance requirements to find the best fit.

5. Ask about customer support capabilities 

High-risk businesses may face unexpected issues, so having a reliable support team is essential.

What can high-risk merchant accounts expect from payment processing?

Working with a reliable merchant account service provider that specializes in this area will help high-risk businesses get approved more easily. But their experience will be different from accounts that are considered lower risk. Expect:

• Higher payment processing fees of up to 1.5%
• Additional interchange rates
• Higher chargeback fees

How can my business earn low-risk account status?

While there is no surefire way to guarantee that your business will be classified as low-risk, there are a few things you can do to improve your chances. To keep chargeback under control, merchants can:

• Verify customer identities when they pick up layaways, special orders or shipments. This provides evidence to prove the sale is legitimate.
• Provide clear billing descriptions that appear next to charges from your shop on the customer’s bank statement.
• Offer a clear sales receipt that lists your store, location, phone number and the items purchased. This helps customers match details with their bank statement information.
• Handle authorization requests carefully. Do not repeat an authorization request if you receive a payment decline, as unauthorized transactions can easily result in a chargeback.
• State your terms and conditions clearly. Ensure that your sale and return policies are readily available, easy to follow, and that you cooperate with them.

Thrive with Lightspeed

By working with a trusted provider like Lightspeed, retailers can adopt techniques that help them scale their business, facilitate smoother transactions and pave the way for a stronger financial future. Talk to an expert

FAQs

What would you identify as high risk merchants?

High-risk merchant accounts are for businesses prone to chargebacks, fraud, or scrutiny due to their industry, high transaction volumes, or subscription models.

How much does a high risk merchant account cost?

High risk merchant accounts can expect higher payment processing fees of up to 1.5%, additional interchange rates, and higher chargeback fees.