What Makes a Merchant High-Risk?
A high-risk merchant is a business classified by acquiring banks and payment processors as having elevated risk due to its industry vertical, business model, chargeback history, or regulatory environment. High-risk merchants face higher processing fees (3-8%), rolling reserve requirements (5-20%), and stricter underwriting through BIN sponsorship arrangements with specialized processors.
Are You High-Risk? Key Indicators
- Your industry MCC is flagged by card networks (CBD, crypto, adult, gaming, nutra)
- Your chargeback ratio exceeds 0.8% of total transactions
- You sell subscription-based products with recurring billing
- Your average transaction value exceeds $500
- You process international transactions in multiple currencies
- Your business has been previously terminated by a processor
- You are in a heavily regulated industry requiring special licenses
Common High-Risk MCCs and Processing Costs
Merchant Category Codes (MCCs) are four-digit codes assigned by card networks to classify businesses by the type of goods or services they provide. Certain MCCs automatically trigger high-risk classification due to historically elevated chargeback rates, regulatory complexity, or reputational concerns. Processing fees and reserve requirements vary by processor and individual merchant profile.
| MCC | Industry | Risk | Fees | Reserve |
|---|---|---|---|---|
| 5912 | CBD & Hemp / Pharmacies | Very High | 3.5% - 6.0% | 10-15% |
| 6051 | Cryptocurrency Services | Very High | 4.0% - 8.0% | 10-20% |
| 5499 | Nutraceuticals / Supplements | High | 3.0% - 5.5% | 5-15% |
| 5967 | Adult Content & Services | Very High | 4.0% - 7.0% | 10-15% |
| 7995 | Online Gaming & Gambling | Very High | 4.0% - 8.0% | 10-20% |
| 4722 | Travel Agencies | High | 2.5% - 4.5% | 5-10% |
| 5944 | Firearms & Ammunition | High | 3.0% - 5.0% | 5-10% |
| 5993 | E-Cigarettes & Vaping | High | 3.5% - 6.0% | 10-15% |
Understanding BIN Sponsorship
Most high-risk merchants cannot obtain direct acquiring relationships with major banks. Instead, they work through payment processors that operate under a BIN (Bank Identification Number) sponsorship agreement with a registered acquiring bank. The BIN sponsor is the entity registered with Visa and Mastercard, and it assumes ultimate liability for transactions processed under its BIN. This three-party structure (merchant, processor, BIN sponsor) means high-risk merchants face stricter underwriting because the BIN sponsor must evaluate the cumulative risk of all merchants in the processor's portfolio. When a processor loses its BIN sponsor, all merchants on that BIN lose processing capability simultaneously.
How Rolling Reserves Work
Rolling reserves are the most common risk mitigation tool used by acquirers for high-risk merchants. The acquirer withholds a fixed percentage of each day's processing volume and holds it in a reserve account for a specified period. Standard terms range from 5% to 10% of volume held for 6 months, though the highest-risk merchants may face 15-20% reserves with 12-month holding periods. Funds are released on a rolling basis after the holding period expires.
Example: 10% Reserve, 6-Month Hold
Monthly Volume
$100,000
Monthly Reserve
$10,000
Max Reserve Balance
$60,000
After month 7, $10,000/month releases as new $10,000/month is held, maintaining a rolling $60,000 reserve balance.
How to Get Approved for High-Risk Processing
Securing a high-risk merchant account requires preparation and documentation. Processors evaluate your business model, financial stability, chargeback history, and compliance posture. Having complete documentation ready significantly accelerates the approval process and can result in better terms.
Prepare Documentation
Business registration, EIN, articles of incorporation, principal ID, 3 months bank statements
Processing History
6-12 months of statements from current/previous processor showing volume, chargeback ratio, and refund rate
Website Compliance
Clear terms of service, refund policy, privacy policy, contact information, and product descriptions
Compliance Tools
Demonstrate existing fraud prevention: 3DS, Ethoca/Verifi enrollment, AVS/CVV enforcement
Apply to 3-5 Processors
Different processors specialize in different verticals; apply to multiple to compare terms and maximize approval odds
How MerchantGuard Helps High-Risk Merchants
MerchantGuard's GuardScore assessment evaluates your risk profile and matches you with processors that specialize in your industry. Our AI compliance coaches provide industry-specific guidance for CBD, crypto, nutraceuticals, adult, gaming, travel, and more.
Frequently Asked Questions
What industries are considered high-risk for payment processing?
The most common high-risk industries include CBD and hemp (MCC 5912), cryptocurrency services (MCC 6051), nutraceuticals and supplements (MCC 5499), adult content (MCC 5967), online gaming and gambling (MCC 7995), travel agencies, subscription services, firearms dealers, e-cigarettes, credit repair, and debt collection. Any industry with chargeback rates consistently above 1% is generally classified as high-risk.
What is a BIN sponsor and why do high-risk merchants need one?
A BIN (Bank Identification Number) sponsor is a registered acquiring bank that allows payment processors to operate under its bank identification number. High-risk merchants often cannot get direct acquiring relationships, so they work through payment processors that have BIN sponsorship agreements. The BIN sponsor assumes ultimate liability, which is why high-risk accounts face stricter underwriting and higher fees.
What is a rolling reserve and how does it work?
A rolling reserve is a risk management tool where the acquiring bank withholds a percentage of each transaction (typically 5-10%) in a reserve account for a set period (usually 6-12 months). This reserve covers potential chargebacks and fraud losses. After the holding period, reserved funds are released to the merchant on a rolling basis. Higher-risk merchants may face reserves up to 15-20% with longer holding periods.
How long does it take to get approved for high-risk processing?
High-risk merchant account approval typically takes 5 to 21 business days depending on the processor, industry, and completeness of documentation. Some specialized high-risk processors offer preliminary approvals in 48-72 hours. Required documentation usually includes business registration, processing history, bank statements, a website review, and a detailed description of products or services sold.
Can a high-risk merchant become low-risk?
A merchant's risk classification can improve over time by maintaining low chargeback ratios (under 0.5%), demonstrating consistent processing volume, building a positive processing history of 12+ months, implementing strong fraud prevention tools, and improving their compliance posture. However, industry-based risk classification (like CBD or adult content) typically remains regardless of individual merchant performance.
