Business.com aims to help business owners make informed decisions to support and grow their companies. We research and recommend products and services suitable for various business types, investing thousands of hours each year in this process.
As a business, we need to generate revenue to sustain our content. We have financial relationships with some companies we cover, earning commissions when readers purchase from our partners or share information about their needs. These relationships do not dictate our advice and recommendations. Our editorial team independently evaluates and recommends products and services based on their research and expertise. Learn more about our process and partners here.
Credit Card Processing in High-Risk Industries
Consumers expect to pay with credit and debit cards, but finding a credit card processor in certain industries can be challenging. Here are the pros and cons of a high-risk merchant account.
Table of Contents
For most small businesses, accepting credit and debit cards and digital payment methods isn’t just a matter of convenience — it’s essential to customer satisfaction and the bottom line. However, businesses in what are considered “high-risk” industries can have a hard time finding a credit card processor or merchant account provider to handle their payments. They may have to jump through more hurdles or pay higher fees to secure payment processing services.
We’ll break down which industries are considered high-risk, explain why that matters and walk you through the pros and cons of working with a high-risk merchant account provider.
What is a high-risk merchant account in credit card processing?
A high-risk merchant account is a type of payment processing account assigned to businesses that are more likely to experience chargebacks, refunds or credit card fraud or operate in industries considered unstable or legally complex. These accounts typically come with higher fees and stricter contract terms because they pose more liability for credit card processors and banks.
Editor’s note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
If your business is classified as high-risk, you may also be required to maintain a rolling reserve — a portion of your credit card sales that the processor temporarily holds as a buffer against potential disputes or chargebacks.
In contrast, businesses with strong credit histories and low chargeback rates often qualify for standard merchant accounts, which offer more favorable terms and lower processing fees.
Which industries are considered high risk?
Several industries can be considered high risk. For example, heavily regulated or controversial sectors, such as weapons retailers or tobacco, face legal scrutiny and frequent business lawsuits, leading to higher liability and a greater risk of business failure.
Other industries are seasonal or highly dependent on consumer spending, which often means inconsistent revenue. “The most common types of merchants that are classified as high-risk are those that require large deposits or purchases well in advance of the service occurring or the product being delivered,” explained Phillip Parker, founder of CardPaymentOptions.com. “A common example of this is travel-related businesses, such as those that offer vacation packages or tours.”
Parker also pointed out that some businesses, such as cannabidiol ventures, are labeled high risk not because of past financial issues, but because they’re operating in newer or less-understood markets. “[They] represent emerging industries that are not well understood both from a transaction risk point-of-view, as well as government policy and regulation standpoint.”
Businesses commonly considered high risk by most lenders include:
- Weapons manufacturers and retailers
- Tobacco, alcohol and cannabis
- Gambling and sports betting
- Adult entertainment and content
- Travel agencies and tour operators
- Health supplements and pharmacies
- Forex, payday lending and check cashing services
- Debt collectors and auctioneers
- Dating services
- Businesses with a subscription model
- Cryptocurrency and forex trading
- E-commerce (dropshipping, online electronic goods and international retail)
What makes a business or industry high risk?
Kyle Hall, CEO of PayKings, explained that several elements can trigger a high-risk classification for a business. “Generally, a business is deemed high-risk when they display indicators that fall outside of a standardized model established by a bank or processor,” Hall said. “These indicators may include excessive chargebacks, a higher potential for fraud, regulatory restrictions or a volatile industry like cryptocurrency.”
Parker emphasized three characteristics that can cause a processor to classify a merchant as high risk. “First, is if the merchant operates in an industry that has either been classified as high risk or is an emerging industry wherein banks have not fully assessed the risks it poses for them to process payments,” Parker explained. “Second is when an owner has a poor credit score. Third, if the business is doing high-ticket sales with the average sale amount in the thousands of dollars.”
The best credit card processors abide by specific classifications for high-risk merchants. Here’s an overview of what may land you in the high-risk credit card processing category as opposed to the low-risk one:
High risk | Low risk |
|---|---|
$20,000 or more in monthly transactions | Less than $20,000 in monthly sales |
Average transaction of $500 or more | Average transaction of less than $500 |
High-risk industry (forex, gambling, travel) | Low-risk industry, such as clothing, home goods or books) |
Excessive chargebacks and disputes | Low chargeback ratio (less than 0.9 percent of total transactions) |
Accepts multiple currencies as payment | Only accepts one currency as payment |
Offers recurring payment options (subscriptions) | Conducts single transactions only (no subscriptions) |
Conducts business internationally | Conducts business only in the United States |
While this table serves as a general guide, whether your business is categorized as high risk or low risk is ultimately up to the credit card processing company.
Hall emphasized that chargebacks are a major red flag. “Any business that has high chargeback ratios is also deemed high-risk. This could be due to poor shipping policies, bad product quality or a difficult refund process,” Hall explained.
If you’re a merchant operating in a high-risk industry, there are ways to reduce the cost of doing business:
- Choose a credit card processor that only charges you for transactions processed through your site or app.
- Apply for a high-risk merchant account with a processor experienced in your industry.
Pros and cons of high-risk merchant accounts
If your business is classified as high risk, one of the biggest hurdles is simply finding a payment processor willing to approve your account. Even after that, you’ll likely face higher processing fees, rolling reserves and stricter contract terms.
That said, there are also upsides to working with a processor that specializes in high-risk industries — especially if they understand your unique challenges and offer support tailored to your business. The key is to shop around and find a provider with fair, transparent pricing and experience in your field.
Pros of working in a high-risk industry
- Opportunity to expand your market: As a high-risk merchant, you can do business with clients in countries or regions considered high risk, giving you access to broader international markets than many low-risk merchants can tap into.
- High profit margins: High-risk merchants often sell specialized or in-demand products that command higher prices. Plus, you can offer a wider range of products and services, including those not allowed by traditional processors, which may boost your revenue potential.
- Chargeback protection: If a low-risk merchant exceeds their chargeback limit, their processor might terminate the account immediately. With a high-risk account, however, the processor is more likely to pause your ability to accept payments temporarily while the issue is resolved — a major benefit if your business is prone to disputes.
- Fraud prevention tools: Operating in a high-risk space means you’re exposed to more fraud attempts — but this also drives the development and adoption of better fraud prevention tools. Over time, these tools can help improve your overall security and operations.
Hall noted another key advantage: You can accept payments even in restricted industries. “There are processors that support all types of businesses and when you open an account with one that understands the business model, even if it’s in a high-risk industry, you will be able to process more seamlessly,” Hall explained.
Cons of working in a high-risk industry
- Higher fees and rates: Because high-risk businesses pose a greater liability to credit card processors, they typically pay higher processing rates and fees. You may also be subject to a rolling reserve — where a portion of your funds is held back for a time to protect the processor in case of excessive chargebacks. “The rates and fees for traditional processing average just over 2 percent of the sale amount, but with a high-risk merchant account, it is very common to see processing fees exceeding 5 percent,” Parker explained.
- Greater chance of being impacted by regulation: Many high-risk industries are highly regulated or subject to frequent legal changes. For example, cannabis businesses may face shutdowns or relocation if marijuana laws shift in their state.
- More frequent chargebacks: Buyers in high-risk industries — such as online gambling, adult entertainment or expensive subscription services — are more likely to dispute charges. Excessive chargebacks can incur additional fees or even cause your processor to terminate your account.
- Increased exposure to fraud: Businesses that sell high-priced goods or operate online are often targeted by scammers using stolen credit cards. Eventually, these sales will get reversed when discovered by the legitimate cardholder.
- More stress: Navigating regulations, chargebacks, fraud and account limitations — not to mention higher fees — can create more day-to-day stress for business owners operating in high-risk industries.
- Stricter underwriting and account holds: You’ll likely undergo a more thorough underwriting process when applying for a merchant account. That may include detailed financial reviews, background checks and additional documentation. Even after approval, processors may impose rolling reserves or hold your funds for longer periods to protect against chargeback-related losses.
Many merchants aim to stay in the low-risk category to avoid extra scrutiny, costs and uncertainty. But don’t let the “high-risk” label deter you if the industry offers strong profit potential. Just be prepared for added complexity — and choose a processor with experience supporting businesses like yours.
Danielle Bauter contributed to this article.
