Merchant Services for High Risk

For many entrepreneurs in the UK, the excitement of launching a new venture is quickly dampened by a rejection letter from a high street bank. You have a solid business plan, a great product, and customers waiting to pay, yet you cannot secure the facility to take their money. This is a common reality for those operating in sectors deemed high risk. Identifying and understanding the factors that make a business high risk—such as sales volatility, industry type, and financial stability—is crucial for navigating payment processing challenges.

If traditional financial institutions have turned you away, you are not alone. It does not mean your business is unviable. It simply means you require a specific type of financial partner. You need a specialist provider who understands the complexities of your industry. This guide explores the landscape of high risk merchant services, explaining why certain businesses fall into this category and how you can secure the payment solutions you need to grow.

Understanding the High Risk Classification

Before diving into solutions, it is vital to understand what happens behind the scenes at a bank. When you apply to accept payments by card, the acquiring bank assesses the likelihood of financial loss. As part of this process, the bank evaluates the business’s risk level by considering factors such as susceptibility to chargebacks, potential for fraud, and exposure to regulatory challenges. If that likelihood exceeds their standard appetite, you are labelled a high risk business.

Being considered high risk is not necessarily a reflection of your personal credit rating or business acumen. It is often determined by the industry you operate in or the way you process transactions. High risk businesses often face higher chargeback ratios, regulatory scrutiny, or inconsistent revenue streams. Consequently, standard payment processors often refuse to work with them, leaving these merchants to seek out high risk merchant accounts designed to handle these specific challenges.

What Distinguishes Low Risk from High Risk?

A low risk merchant typically operates in a standard retail environment with face-to-face transactions, low ticket values, and a very low probability of customer disputes. Think of a local coffee shop or a newsagent. These businesses can easily access low risk merchant accounts with minimal vetting.

In contrast, high risk merchants often operate online, sell future-deliverable goods, or work in industries with complex legal frameworks. The business’s risk level is assessed based on processing history, the average transaction value, and the merchant category code assigned to the trade.

Common High Risk Industries

The list of sectors that require high risk accounts is extensive. If you operate in any of the following fields, you will likely need a specialist merchant account provider:

Adult Entertainment

This is perhaps the most well-known high risk sector. Due to age verification requirements and higher chargeback rates, adult entertainment businesses almost always require specialised high risk merchant accounts.

Online Gambling and Gaming

Online gambling is heavily regulated in the UK. The potential for fraud, money laundering, and addiction concerns means that banks view this as a volatile sector. A high risk merchant account is essential to navigate the regulatory landscape here.

Subscription Services

Businesses that rely on recurring billing, such as subscription services or gym memberships, are often prone to customers disputing charges months after they appear on a statement. This “friendly fraud” elevates the fraud risk, pushing these companies into the high risk category.

Travel and Booking

Travel agencies deal with high value transactions and services that are delivered far in the future. If a travel company goes bust before the trip is taken, the bank is often liable for refunds. This financial exposure makes travel a classic high risk business.

Nutraceuticals and CBD

While legal, industries involving health supplements, CBD, or weight loss pills face strict advertising regulations and health concerns. The regulatory grey areas often lead traditional banks to classify them as high risk.

Why You Need a High Risk Merchant Account

If you have been rejected by a standard bank, applying for a high risk merchant account is the logical next step. These accounts are not just a fallback; they are sophisticated financial tools built to withstand volatility.

Customised Risk Management Solutions

A standard payment provider might freeze your funds the moment they see a spike in sales. A specialist in high risk businesses expects volatility. They provide customised risk management solutions that allow you to trade without constant fear of account termination. These providers use advanced risk management tools to monitor transactions in real time, filtering out fraudulent transactions before they become chargebacks.

Multi-Currency and International Sales

Many high risk merchants operate globally. Standard accounts often struggle with international transactions or charge exorbitant rates for currency conversion. A dedicated high risk merchant account often comes with the ability to accept multiple currencies, facilitating international sales and allowing you to expand your customer base beyond the UK.

Higher Chargeback Thresholds

Standard accounts have very low tolerance for chargebacks. If you exceed a 1% ratio, they may close your account immediately. High risk accounts typically have higher thresholds, acknowledging that chargebacks are an inherent part of your business model.

The Cost of Doing Business: Fees and Restrictions

It is important to be realistic. High risk merchant accounts do come with higher costs than their low risk counterparts. The acquiring banks and payment processors are taking on a greater liability by processing your payments, and this risk is priced into the service.

Transaction and Monthly Fees

You should expect to pay higher fees on every sale. While a low risk shop might pay 0.5% per transaction, high risk merchants might see transaction fees ranging from 2% to over 5%, depending on the severity of the risk. Additionally, monthly fees for gateway maintenance and account management are common.

Higher fees are not the only cost factor. You may also face higher transaction fees for international cards or specific card types. However, as you build a solid processing history, you can often renegotiate these rates.

The Rolling Reserve

One specific feature of high risk merchant accounts is the rolling reserve. This is a risk mitigation tool where the merchant bank holds a percentage of your revenue (typically 5% to 10%) for a set period, often 180 days. This fund is used to cover potential chargebacks or refunds if the business ceases trading or faces financial instability. While this affects cash flow, it provides the security the bank needs to approve the account.

Longer Settlement Periods

While a standard business might get their money the next day, high risk accounts often have a longer settlement period. It might take three to seven days for funds to arrive in your bank account. This delay acts as a buffer against fraud.

Selecting a Merchant Account Provider

Choosing the right partner is critical. There are many payment processors claiming to specialise in high risk, but not all deliver reliable payment processing.

Look for Industry Expertise

Does the provider have experience in your specific sector? A provider who understands online gambling might not be the best fit for a nutraceuticals company. You need a partner who understands the unique regulatory challenges and transaction patterns of your industry.

Security Measures

A secure payment gateway is non-negotiable. Ensure the provider offers strong security measures including 3D Secure, card verification value checks, and AVS (Address Verification System). These tools help reduce the risk of fraud and keep your merchant account healthy.

Transparency in Contract Terms

Be wary of providers who hide costs. Look for transparent pricing regarding monthly fees, transaction fees, and the terms of the rolling reserve. You also want flexible contract terms where possible. Some high risk contracts try to lock you in for years; try to find a provider that offers reasonable exit clauses.

The Application Process for High Risk Merchants

Applying for a high risk merchant account is more rigorous than opening a standard account. The acquiring banks will conduct a deep dive into your business.

Prepare Your Documentation

To speed up the approval process, have your documents ready. You will typically need:

• Certificate of Incorporation and business licences.
• Proof of identity for all directors.
• 3 to 6 months of bank statements showing financial history.
• Previous processing statements (if you have them) to show sales volume and chargeback rates.
• A compliant website with clear terms and conditions.

The Importance of a Business Plan

For startups without a history, a solid business plan is essential. You need to demonstrate financial stability and show the bank how you intend to manage the risk involved in your operations.

Assessing Your Website

Your website is your shop window. The merchant account provider will check it for compliance. Ensure you have clear refund policies, visible contact details, and a secure checkout page. The payment gateway integration must be seamless and secure.

Managing Health Concerns in High Risk Industries

High risk industries such as adult entertainment, online gambling, and tobacco face a unique set of health concerns that go beyond the products or services they offer. For high risk merchants, the “health” of the business often refers to its ability to withstand financial instability, regulatory challenges, and reputational risks—all of which can impact the ability to accept payments and maintain a stable merchant account.

One of the most pressing concerns in these sectors is the increased likelihood of fraudulent transactions and chargebacks, especially when dealing with high transaction volumes. This can quickly erode financial stability and lead to higher fees or even account termination. To address these risks, high risk merchant account providers offer customised risk management solutions, including advanced risk management tools that monitor for suspicious activity, chargeback alerts, and blacklists. These measures help merchants detect and prevent fraudulent transactions before they become a threat to the business.

Reputational risk is another significant health concern for high risk industries. Negative publicity or a spike in chargebacks can damage a business’s standing with both customers and financial institutions. To safeguard their reputation and ensure regulatory compliance, high risk merchants should implement strong security measures such as card verification value (CVV) checks and customer address confirmation. These security protocols not only protect against fraud but also demonstrate a commitment to secure payment processing, which is essential for maintaining trust with both customers and merchant account providers.

Regulatory challenges are also a constant consideration. Industries like tobacco or nutraceuticals are subject to strict guidelines and frequent changes in legislation. High risk merchants must stay ahead of these changes to avoid penalties or disruptions in their ability to accept payments. Partnering with a merchant account provider that offers tailored solutions and expertise in regulatory compliance can make navigating these complexities much easier.

Financial stability is crucial for any business, but especially for those considered high risk. Maintaining a healthy cash flow, keeping chargebacks low, and demonstrating responsible transaction patterns can help high risk merchants negotiate more competitive rates and lower monthly fees over time. While higher transaction fees and the requirement for a rolling reserve are standard in high risk merchant accounts, these costs can be managed by working with a reputable provider who understands your industry and can offer flexible, competitive terms.

Ultimately, managing health concerns in high risk industries requires a proactive approach. By leveraging robust risk management tools, prioritising strong security measures, and working closely with a knowledgeable merchant account provider, high risk businesses can protect themselves against financial instability, regulatory pitfalls, and reputational damage. This not only ensures ongoing access to reliable payment processing but also positions the business for long-term success, even in the most challenging high risk sectors.

Mitigating Risk to Lower Fees

Just because you are deemed high risk today does not mean you are stuck with high costs forever. You can take steps to improve your standing with financial institutions.

Keep Chargebacks Low

The single most effective way to lower your risk profile is to minimise chargebacks. Use clear descriptors on customer bank statements so they recognise the charge. Offer excellent customer support so customers call you for a refund rather than calling their bank to dispute the transaction.

Maintain Financial Stability

Banks get nervous when they see erratic balances. maintaining a healthy float in your business bank account demonstrates stability.

Check Your Credit Rating

While business risk is the primary factor, personal credit rating can still influence the decision, especially for smaller businesses. Improving your poor credit score can help in negotiations.

Navigating Regulatory Compliance

High risk businesses are often subject to stringent regulatory compliance. Whether it is knowing your customer (KYC) checks for financial services or age verification for adult entertainment, failing to comply can lead to immediate account closure.

A good merchant account provider will assist you with this. They can offer tailored solutions that integrate compliance checks directly into the payment processing flow. This ensures that you only accept payments from legitimate, verified customers, protecting both your licence and your merchant account.

The Role of Acquiring Banks

It is the acquiring banks that ultimately hold the risk. Payment processors act as the middleman, but the acquirer is the institution that releases the funds. In the high risk world, there are fewer acquirers willing to take on these merchants.

Because there are fewer options, the relationship with your acquirer is precious. If you lose a high risk merchant account due to excessive chargebacks or rule violations, you may be placed on the TMF (Terminated Merchant File). This blacklist makes it nearly impossible to open a new account with any provider. Therefore, treating your merchant account with care is a priority for business survival.

Alternatives for High Risk Payments

If you are struggling to get a dedicated high risk merchant account, you might look at aggregators. However, be cautious. Large aggregators often shut down high risk accounts without warning because their automated systems flag the risk profile as violating their terms.

For long-term stability, a dedicated account with a specialised merchant account provider is always superior to an aggregator. It provides you with your own merchant ID, giving you control over your processing history and industry reputation.

Final Thoughts on High Risk Merchant Services

Operating a business in a high risk sector is undoubtedly challenging, but it is also where some of the most innovative and profitable ventures exist. Being considered high risk is a hurdle, not a roadblock.

The key is to partner with financial institutions and payment processors that specialise in high risk merchant services. These providers do not just tolerate your business; they understand it. They offer the secure payment gateway, the risk management tools, and the tailored solutions necessary to navigate the choppy waters of high risk industries.

Yes, you will likely face higher fees and a rolling reserve. You will have to work harder to maintain regulatory compliance and keep your chargebacks low. But in exchange, you get reliable payment processing that won’t be shut down overnight. You get the ability to accept online payments globally and the freedom to run your business model effectively.

Do not let the label “high risk” deter you. With the right merchant account provider, high risk merchants can thrive, scale, and succeed just as well as any low risk merchant. It is simply a matter of finding the right support for your unique journey.

Frequently Asked Questions

What counts as a high risk business? A business is deemed high risk if it operates in an industry with high fraud rates, regulatory challenges, or high transaction volumes. Common examples include online gambling, adult entertainment, and travel.

Why are fees higher for high risk accounts? High risk merchant accounts carry a greater chance of financial loss for the bank through chargebacks or financial instability. The higher fees and transaction fees offset this liability.

Can I get a merchant account with poor credit? Yes, specialist providers focus more on the business potential and risk mitigation than just personal credit rating. However, poor credit might result in slightly stricter terms, such as a larger rolling reserve.

How long does it take to get approved? The application process for high risk accounts takes longer than standard accounts, typically one to two weeks, as the risk businesses pose requires detailed underwriting.

What is a rolling reserve? A rolling reserve is a portion of your sales held by the acquiring banks for a set period (e.g., 180 days) to cover potential future chargebacks or refunds, providing security for the bank against the risk involved.

Is it possible to move from high risk to low risk? Generally, if your industry is high risk, you will always be classified as such. However, with a strong processing history and financial stability, you can often negotiate lower monthly fees and better terms, bringing your costs closer to those of low risk merchant accounts.