Is Your Business Really “High-Risk?” The Factors That Put You on the Watchlist
If your business has been labeled "high-risk", it’s likely due to factors like high chargeback rates, operating in a scrutinized industry (e.g., CBD, online gaming, adult entertainment), or regulatory challenges. This classification impacts your payment processing by increasing fees, requiring reserves, and limiting processor options. However, understanding the criteria and taking proactive steps – such as managing chargebacks, improving compliance, and adopting fraud prevention tools – can help mitigate these challenges.
Key Points:
- High-Risk Industries: CBD, gambling, adult entertainment, nutraceuticals, etc.
- Red Flags: Chargeback rates above 1%, regulatory non-compliance, high transaction volumes.
- Impact: Higher fees (3.5%-6%+), longer settlements (3-7+ days), and fewer processor options.
- Solutions: Use chargeback tools, meet compliance standards, and partner with specialized processors like RiskPay.
By addressing these issues and preparing for stricter application processes, high-risk businesses can still secure reliable payment processing and improve their standing over time.
High-Risk Merchant Accounts EXPLAINED: What to Do If Your Business Is Considered High-Risk
What Makes a Business High-Risk?
Payment processors and financial institutions assess businesses based on specific criteria to gauge potential financial and legal risks. These evaluations focus on measurable indicators that help predict losses, regulatory challenges, and operational hurdles. Let’s take a closer look at the industries that often raise red flags.
Industries Often Flagged as High-Risk
Some industries naturally attract more scrutiny due to their unique challenges and track records. For example:
- CBD and cannabis businesses: These companies face a maze of state laws, even for hemp-derived CBD products that are federally legal. Compliance becomes tricky and varies widely by location.
- Online gaming and gambling: Age verification requirements, differing state regulations, and the digital nature of these businesses contribute to higher fraud risks and frequent billing disputes.
- IPTV and streaming services: Subscription billing models can confuse customers, leading to disputes. Additionally, the legal landscape around digital content is constantly evolving, inviting regulatory attention.
- Adult entertainment: These businesses often come with reputational concerns for payment processors, along with high chargeback rates and strict age verification rules.
- Nutraceuticals and supplements: Operating in a regulatory gray area, these businesses can attract scrutiny from the FDA, especially when health claims are involved.
Why Payment Processors Monitor High-Risk Businesses Closely
The challenges tied to these industries explain why payment processors keep a close eye on them. Excessive chargebacks are a major issue, as processors often end up covering disputed costs when merchants can’t pay. For instance, merchants listed in the Mastercard Alert to Control High Risk Merchants (MATCH) database typically exceed certain thresholds, such as a chargeback rate of over 1% with monthly chargebacks totaling $5,000 or more, or fraud rates of 8% or higher with at least 10 fraudulent transactions amounting to $5,000 monthly.
Regulatory penalties are another significant concern. The Visa Integrity Risk Program (VIRP), which replaced the Global Brand Protection Program in April 2023, categorizes high-risk merchants into three tiers based on their potential for harm and illegal activity. Non-compliance can lead to fines, increased monitoring, or even the loss of processing privileges for payment processors.
Reputation also plays a big role. Processors risk damaging their relationships with banks and card networks when working with high-risk businesses. Additionally, transaction laundering – where businesses disguise the true nature of their transactions – creates compliance headaches and potential legal issues. Programs like Mastercard’s Business Risk Assessment and Mitigation (BRAM) specifically target non-compliance with card network rules.
These factors force processors to implement strict monitoring and risk management measures, making it more costly and complicated to serve high-risk businesses. Understanding these challenges can help businesses in these categories take proactive steps to reduce risks and improve their standing.
Factors That Make You High-Risk
Payment processors assess your business’s risk level by analyzing specific factors. Knowing these can help you spot potential issues and take steps to address them before they become problems.
Chargeback Rates and Fraud Risk
A chargeback ratio above 1% is often a red flag for payment processors, with some setting the bar even lower. Why? Because chargebacks aren’t just a hassle – they come with direct costs. Processors must manage disputes, handle refunds, and pay penalties to card networks.
Major card networks have strict chargeback monitoring programs. For instance, Mastercard fines businesses with chargeback rates of 1.5% or higher. Visa’s Acquirer Monitoring Program (VAMP) will begin flagging merchants with a 2.2% combined chargeback and TC40 (fraud report) ratio starting September 1, 2025. Meanwhile, American Express and Discover set their threshold at 1%.
Fraud also plays a big role in these numbers. Card-not-present (CNP) fraud – common in online transactions – and "friendly fraud", where customers dispute legitimate charges, can quickly push your chargeback rate higher.
If you exceed these thresholds, you could face increased scrutiny, account termination, or even placement on the MATCH list. This industry blacklist makes it incredibly challenging to secure payment processing services in the future.
But chargebacks aren’t the only factor processors consider. Regulatory compliance is another critical area.
Regulatory and Compliance Issues
Failing to meet PCI DSS requirements is a major red flag. Non-compliance can lead to data breaches, hefty fines, and increased risk for payment processors.
Certain industries face additional challenges due to regulatory complexities. Businesses operating in areas with unclear or frequently changing regulations often attract more scrutiny. Conflicting state laws can further complicate compliance, raising your risk profile.
Beyond compliance, your transaction patterns also play a key role in how processors evaluate your business.
Transaction Volume and Business Type
High transaction volumes and recurring billing models can increase your risk level. While a high transaction volume often signals business growth, it also means that disputes or fraud can lead to greater financial losses.
Recurring billing adds another layer of risk. Subscription-based businesses frequently face disputes when customers forget about recurring charges. Plus, the automated nature of these transactions can make fraud detection more difficult.
Large average transaction amounts are another concern. The higher the value of each sale, the bigger the potential loss during disputes. Similarly, card-not-present transactions – like online or phone orders – carry more risk than in-person sales because there’s no physical verification to prevent fraud.
All these factors shape your business’s risk profile. They influence not only whether a payment processor will approve your account but also the fees and restrictions they might impose. Understanding how your business stacks up against these criteria can help you prepare for the application process and pinpoint areas for improvement.
How High-Risk Status Impacts Payment Processing
Being labeled a high-risk business significantly changes the dynamics of payment processing. It affects everything from fees to reserves and even cash flow management.
Higher Fees and Reserve Requirements
High-risk businesses are charged more across the board. This includes transaction fees, monthly fees, setup fees, and even chargeback fees. Additionally, rolling reserves – where 5% to 20% of your transactions are held back for six to 12 months – are common. For example, if your business generates $50,000 in monthly sales, you might see a substantial portion withheld, reducing immediate access to funds. Settlement times are also longer, stretching from the usual one to two business days to three to seven days or more.
To manage these challenges, consider negotiating for interchange-plus pricing, which offers clearer and potentially lower fees. It’s also critical to plan your cash flow carefully by maintaining a strong reserve fund instead of relying solely on immediate payouts.
Fewer Payment Processor Options
Mainstream payment processors often avoid high-risk businesses due to their strict policies. This pushes high-risk businesses toward specialized providers. While these providers understand the unique needs of high-risk industries, the limited competition often results in higher rates and stricter terms. The application process is also more involved, requiring extensive underwriting, additional documentation, and, in some cases, personal guarantees or extra collateral.
These challenges highlight the stark differences between high-risk and low-risk payment processing.
High-Risk vs. Low-Risk Processing Differences
| Aspect | Low-Risk Processing | High-Risk Processing |
|---|---|---|
| Transaction Fees | 1.5% – 3.5% | 3.5% – 6%+ |
| Monthly Fees | $0 – $30 | $25 – $100+ |
| Setup Fees | $0 – $100 | $100 – $500+ |
| Reserve Requirements | Rarely required | 5% – 20% rolling reserve |
| Contract Length | Month-to-month common | 1–3 years with early termination fees |
| Settlement Time | 1–2 business days | 3–7+ business days |
| Application Approval | Often instant/same day | 1–2 weeks or longer |
| Chargeback Fees | $15 – $25 | $25 – $100+ |
High-risk merchants often face longer contracts with penalties for early termination, while low-risk businesses enjoy more flexibility with month-to-month agreements. These differences emphasize the importance of developing strategies to manage risks and streamline payment processing.
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How to Reduce Risk and Improve Payment Processing
Managing payment processing risks effectively is crucial, especially for businesses labeled as high-risk. While this classification presents hurdles, there are practical strategies to improve your risk profile and secure better terms with payment processors. The goal? Show you’re taking proactive steps to manage risks and operate responsibly.
Use Chargeback Management Tools
Chargebacks can be a headache, but the right tools can help you address disputes before they escalate. Real-time alerts, for instance, give you a heads-up on potential issues so you can resolve them quickly. Chargeback prevention tools also come in handy, helping you flag problematic transactions early.
Clarity is key when it comes to communication. Make sure your billing descriptors are easy to recognize on credit card statements, and prominently display customer service contact details. This reduces confusion and minimizes the chances of customers filing disputes out of frustration. Keeping thorough transaction records – like communication logs, delivery confirmations, and service terms – can also strengthen your case if disputes arise.
Meet Industry Compliance Standards
Compliance isn’t just about avoiding fines; it’s about building trust with payment processors and their banking partners. High-risk businesses should align with regulatory standards from agencies like the Financial Crimes Enforcement Network (FinCEN), adhering to the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) guidelines.
Payment processors are more likely to work with businesses that can demonstrate strong compliance practices. Keep your policies, procedures, training records, and audit reports well-organized. This not only shows you’re serious about compliance but also reassures financial institutions that you have solid internal controls.
Add Fraud Prevention Tools
Fighting fraud requires more than just basic measures – it calls for a layered approach that combines technology and vigilance. Start with tools like Address Verification Service (AVS) and Card Verification Value (CVV) checks, but don’t stop there.
Machine learning fraud detection can instantly flag unusual transaction patterns, while velocity checks monitor the frequency and amount of transactions from a single card, triggering additional verification if limits are exceeded. For online transactions, consider integrating 3D Secure authentication. While it adds an extra step for customers, it can reduce fraud liability and showcase your commitment to secure payments.
Device fingerprinting is another valuable tool, analyzing transaction devices to detect patterns linked to fraudulent activity. And don’t forget to regularly update your fraud settings to keep up with evolving tactics. Together, these measures help build your reputation for secure and reliable payment processing.
How to Get Payment Processing for High-Risk Businesses
Securing payment processing as a high-risk business requires careful planning and detailed preparation. It’s a more stringent process compared to standard applications, but with the right approach and complete transparency, you can secure a reliable payment solution that supports your business operations.
Getting Ready for the Application
Preparation is the cornerstone of applying for high-risk payment processing. These applications undergo intense scrutiny, so being organized and having all necessary documents ready can make a significant difference.
Start by gathering six months of bank statements, recent financial statements, and several years of tax returns. These documents help demonstrate your financial stability and reassure processors about your ability to manage risk. A bank account with healthy cash levels is another key factor that can positively influence their decision.
You’ll also need to organize essential paperwork like business licenses, registration documents, and a detailed business plan. Your business plan should clearly outline your operations, target audience, and revenue streams. This level of detail allows processors to see beyond the "high-risk" label and understand the full scope of your business.
If you’ve previously processed payments, compile your transaction history. Highlight low chargeback rates and compliance with regulatory standards. Additionally, document your chargeback mitigation strategies, explaining the main causes of disputes and the steps you’ve taken to address them. This proactive approach shows your commitment to managing risk effectively.
Above all, honesty is critical. Being transparent about your operations and financial situation builds trust and reduces the likelihood of account termination down the line. With thorough documentation, platforms like RiskPay can simplify the approval process and provide tailored solutions for high-risk businesses.
How RiskPay Helps High-Risk Businesses
RiskPay is designed to address the unique challenges high-risk businesses face in securing payment processing. It offers features that not only streamline the approval process but also ensure secure and compliant payment solutions.
One standout feature is instant USDC payouts, which eliminate delays and improve cash flow. For e-commerce businesses, RiskPay’s seamless integration with WooCommerce allows for quick and hassle-free payment acceptance.
Another valuable tool is the ability to generate anonymous payment links. This feature enables businesses to collect payments without requiring extensive customer data, offering greater flexibility in how transactions are handled.
RiskPay also supports a wide range of payment methods, including credit and debit cards, Apple Pay, Google Pay, SEPA, and ACH transfers. This variety ensures you can cater to your customers’ preferred payment methods, which can help reduce abandoned transactions and improve your conversion rates.
Additionally, the platform is PCI DSS compliant and includes robust fraud protection measures. These features are critical for maintaining strong relationships with payment processors and safeguarding against security breaches. RiskPay’s flexible plans are designed to adapt to the needs of businesses at different stages of growth.
RiskPay Plans Comparison
RiskPay offers three tailored plans, each designed to meet the specific needs of businesses at various stages:
| Plan | Price | Best For | Key Features | Limitations |
|---|---|---|---|---|
| Basic | Free | Small businesses testing high-risk processing | Instant USDC payouts, WooCommerce integration, payment link generation | Limited to specific payment providers |
| Advanced | Custom Pricing | Established high-risk businesses | All Basic features, advanced fraud protection, global payment acceptance | Requires custom setup |
| Enterprise | Custom Pricing | Large businesses with complex needs | All Advanced features, dedicated support, white-label options | Requires consultation and approval |
The Basic plan is ideal for small businesses just starting with high-risk processing. It offers essential features like instant payouts and WooCommerce integration, but it does have limitations on the payment providers you can use.
The Advanced plan is better suited for established businesses. It includes all the features of the Basic plan, as well as enhanced fraud protection and the ability to accept payments globally. Pricing is customized based on your transaction volume and risk profile.
For larger organizations with more complex requirements, the Enterprise plan provides a comprehensive solution. It includes everything in the Advanced plan, plus dedicated support and white-label options to align with your specific business and compliance needs.
All plans include RiskPay’s core benefits, such as no KYC requirements, real-time payment tracking, and dedicated support for industries like CBD, gaming, and digital subscriptions. The scalable structure allows businesses to start small with the Basic plan and upgrade as their needs grow. This flexibility ensures that RiskPay can adapt to your business as it evolves.
Managing High-Risk Payment Processing
Managing high-risk payment processing effectively calls for a focused and strategic approach. Being categorized as "high-risk" doesn’t mean your business can’t grow – it simply means you’ll need tailored solutions and careful management to navigate the challenges.
The first step is understanding your risk factors. Knowing why your business is classified as high-risk is critical for addressing potential issues. Whether you’re in industries like CBD, gaming, or digital subscriptions, or dealing with chargeback rates above 1%, identifying these factors helps you create a plan to mitigate risks.
Once you understand the risks, it’s all about keeping a close eye on your payment processing metrics. Regular monitoring is key here. Check your chargeback rates and transaction patterns every month. If chargebacks start creeping toward the 1% threshold, act quickly to avoid account holds or terminations. Documenting your fraud prevention measures and compliance efforts is equally important – it shows payment processors that you’re actively managing risks.
Another cornerstone of success is selecting the right payment processing partner. Specialized providers, like RiskPay, cater specifically to high-risk businesses. They understand the unique challenges you face and offer tools designed to help you maintain stability and grow. Choosing a partner with expertise in high-risk industries can make a big difference in your long-term success.
Staying compliant with industry regulations is non-negotiable. Keep up with regulatory changes, ensure your PCI DSS compliance is always current, and maintain detailed records of your compliance efforts. These records are invaluable during processor reviews or when applying for new accounts. A strong compliance framework supports smoother operations and builds trust with processors.
Thriving as a high-risk business means treating payment processing as a strategic priority. Invest in chargeback management tools, maintain open communication with your payment processors, and continually refine your fraud prevention strategies. This not only ensures reliable payment processing but can also lead to better rates and terms over time.
Finally, remember that your risk profile isn’t set in stone. Businesses that consistently demonstrate good practices – like keeping chargeback rates low and building a strong processing history – can sometimes transition to lower-risk categories. With patience, consistency, and the right partners, you can improve your payment processing outcomes and set your business up for long-term success.
FAQs
What steps can high-risk businesses take to reduce fees and improve payment processing times?
High-risk businesses can strengthen their relationship with payment processors by taking steps to minimize chargebacks and showcasing financial reliability. To cut down on chargebacks, make sure your refund policies are clear and easy to understand, deliver top-notch customer service, and utilize fraud prevention tools to safeguard transactions.
On top of that, keeping a healthy cash reserve in your business bank account can demonstrate stability and dependability. Regularly reviewing your account activity and addressing potential issues early can further build trust and improve your rapport with payment processors.
What compliance standards should high-risk businesses follow to avoid penalties and reduce scrutiny?
High-risk businesses can steer clear of unnecessary scrutiny and penalties by prioritizing essential compliance measures. PCI DSS compliance plays a critical role in protecting cardholder data and ensuring payment information stays secure. Alongside this, implementing Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols is crucial for verifying customer identities and curbing fraudulent activities. By also adhering to relevant industry regulations and establishing strong internal policies, businesses not only meet regulatory requirements but also strengthen trust with financial institutions.
What are the best strategies and tools for managing chargebacks in high-risk businesses?
Managing chargebacks is a key priority for high-risk businesses aiming to keep their payment processing smooth and reliable. Here are a few strategies that can make a real difference:
- Partner with an experienced payment provider: Collaborate with a provider who understands the challenges of high-risk industries. They can offer customized solutions to tackle your specific needs.
- Leverage fraud prevention tools: Use advanced systems to detect and block fraudulent transactions before they escalate into chargebacks.
- Stay proactive with dispute management: Utilize tools that help you monitor, track, and streamline the resolution of chargeback disputes.
By adopting these approaches, businesses can minimize chargebacks, enhance their financial stability, and strengthen their relationships with payment processors.
