High risk merchant accounts are types of businesses which are considered riskier than others by financial institutions.
This can either be a direct result of your credit history or the type of business you operate, and no matter where you are in the world; you will be subjected to a variety of application requirements when the time comes to set up your merchant account. Whether or not you are deemed high risk directly affects the types of rates you are going to be offered on transactions by the financial institutions supporting your company. One of the easiest and most identifiable types of high risk merchant accounts are those serving the online adult industry, and in these cases there is a high potential for fraud among the type of clientele your business serves, and the only way to handle these types of transactions is through a secure ISO (independent sales organization), because they are specifically set up to deal with high risk situations, to protect you as a merchant and also the banks which are providing financial support in the first place.
High risk merchant accounts are not limited to businesses in the adult entertainment industry, however. One of the most prevalent types of high risk merchant accounts are casinos, specifically because they deal with customers who could potentially have an extremely high rate of dissatisfaction, which means the chances of said customers coming back against your company and trying to negotiate a reimbursement is much higher than, say, a clothing boutique or an online shoe store.
In order to determine whether or not your account is going to be deemed high risk, companies are going to study the length of time you have been in business, your chargeback history and the type of business that you operate. If you have an extremely low percentage of chargebacks and have been in business for a considerable length of time, you will get better rates because they will not consider you to be a high risk. However, considering credit card fraud and identity theft is one of the highest types of risk and occurs regularly when cards are stolen and used; stringent measures are the only way to protect both you and the consumer from fraud.
If your business has been classified as a high risk account, you will have no option but to pay considerably higher fees on merchant transactions. You may also be expected to build up some form of a reserve with the specific ISO you have hired to do your credit card processing for you, or simply come to terms with them taking a percentage of all transactions. It will depend upon the ISO; bear in mind that certain types of businesses are going to be considered high risk regardless of how much capital you have to work with, and in those cases there will be compromises to be made.