What is a High Risk Merchant Account?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
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  • Last Modified Date: 07 November 2019
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A high risk merchant account is a bank account or payment processing agreement tailored to a business which is deemed high risk. High risk businesses usually need to pay higher fees for merchant services, which can add to their operating costs. Some companies specialize in working specifically with high risk merchants, offering competitive rates which are designed to attract companies which are having difficulty finding a place to do business.

Businesses in a number of different industries are labeled high risk due to the nature of the industry. All adult businesses are high risk, as are businesses like travel agencies, auto rentals, collections services, legal gambling, bail bonds, and so forth. Because working with these companies can carry risks for banks and payment processors, they are obliged to sign up for high risk merchant accounts which have different fee schedules than regular merchant accounts.

At a bank, a merchant account is a bank account which allows people to receive payments from credit cards and debit cards. The bank may also offer a payment processing contract, or the business may need to open a merchant account with a payment processor who collects the funds and routes them to the account at the bank. In the case of a high risk merchant account, there are worries about the integrity of the funds, and the possibility that the bank may be on the hook if there is a problem.


Payments to a high risk merchant account are deemed to carry an increased risk of fraud. For example, someone may use a stolen or forged credit card to make purchases, or a consumer might use a debit card with insufficient funds to do something like renting a car. This increases the risk for the bank and the payment processor, as they will have to deal with the administrative fallout of dealing with the fraud. Ecommerce can also be a risk factor, because businesses do not actually see an imprint credit card; they take orders over the Internet, and this can up the risk of fraud considerably.

When a merchant applies to open an account with a bank or payment processor, he or she may be told to apply for a high risk merchant account. It is a good idea to compare rates, terms, and services on several high risk merchant account products before picking a company to do business with, as the rates can vary considerably and it may be possible to get a better deal with a little bit of sleuthing.


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