High-Risk Merchant Account

High-Risk Merchant AccountIf you’re looking to add more payment options for your European customers, you’ve probably come across a variety of payment services and products that could drive your business growth. While you want to start with a well-serviced merchant account, not every European merchant acquiring bank and merchant account service provider might be willing to accept you as a merchant due to the high risks inherent to the nature of your business.

Don’t fret, you’ve come to the right place – high-risk businesses have a bigger chance of getting a merchant account in Europe compared to non-European countries and our team is more than happy to support you in this journey.

For now, read on to learn about the reasons a merchant might be labelled as high-risk, which merchant account service providers are prepared to offer and maintain a high-risk merchant account and how to open one.

Merchant account service providers and merchant account acquiring banks regularly evaluate the level of risks pertaining to new and existing merchants. If your business currently falls within the category of high-risk or low-risk merchants, you should note that in the future the risk status can change if your business evolves (e.g. expands and starts accepting international payments).

If the risk increases, you can be required to take appropriate action (e.g. to set a reserve of funds or provide more information). Your merchant account might be closed if your provider doesn’t cater to high-risk merchants or if the risk associated with your business is too high.

What Is a High-Risk Merchant

A high-risk merchant is a type of merchant that a merchant account service provider and a merchant acquiring bank consider high-risk due to the company’s history of payments or the nature of business activities that can cause financial losses. Every bank and provider uses a different set of criteria to assess the risk level, although many of them remain the same.

The following factors related to company records usually determine whether a business is high-risk:

  • New merchants without payment processing history tend to be categorised as high-risk merchants as there’s no track record to prove otherwise
  • Exposure to fraud increases if a company engages in economic activities in foreign countries and therefore accepts international payments (certain countries are listed as high-risk third countries in terms of fraud and force the business to be labelled as a high-risk merchant)
  • Large payments volume (the threshold varies from provider to provider)
  • Repeated chargebacks, i.e. consumer payments reversed by banks, lead to loss of revenue and therefore affect the company’s reliability
  • A high volume of returns or cancellations
  • Low business credit score
  • Multi-currency transactions

Aside from company records, certain industries are considered high-risk in terms of susceptibility to fraud, chargebacks and returns. This means that even if a merchant can demonstrate flawless transaction history, the industry they’re working in can still force them into the category of high-risk merchants.

For various reasons the following industries and services are considered high-risk:

  • Debt collection
  • E-Commerce
  • Travel
  • Pawnshops
  • Furniture and electronic stores
  • Gambling
  • Online dating
  • Multilevel marketing
  • SEO services
  • CBD products
  • E-cigarette and vape shops
  • Adult industry
  • Subscription services
  • Services with recurring payment plans

If your company was categorised as a high-risk merchant by a merchant account service provider in the past, you may find it listed on such lists as Mastercard Alert To Control High-risk Merchants (MATCH), designed to protect other merchant account service providers and help them process new applications. This will, of course, impact negatively your application.

High-Risk Merchant Account Providers in Europe

In Europe, plenty of well-known banks and merchant account providers offer an array of services to high-risk merchants. However, not every one of them is likely to accept every industry which is why you should have a closer look at every reputable provider’s history of rejections of businesses operating in certain industries that may disrupt business operations.

The following merchant account providers are likely to help you open and service a high-risk merchant account for you:

  • International Bank Services (IBS) (UK-based but offers merchant accounts in various European countries for gaming, pharmaceuticals casinos and other industries)
  • PayPal (all-in-one commerce package with no monthly fees for borderless transactions)
  • iPayTotal (the UK and Estonia-based sales partner for merchant acquiring banks specialising in credit and debit card set-up for forex, gaming, travel and other industries)
  • European Merchant Accounts (Latvia and Italy-based provider specialising in credit card payments set-up and servicing for digital financial services, online gambling, startups, online alcohol stores and other industries)
  • SecurionPay (Switzerland-based provider specialising in online payments for companies with subscription-based billing models, forex, dating, etc.)
  • MerchantScout (UK-based, specialises in insurance, pharmacy, financial services, jewellery, works with banks in Western Europe to service the entire EU region)

When searching for a high-risk merchant account provider, pay attention to the following aspects:

  • Licences (the provider must be permitted to work in the countries where your company operates)
  • Pricing model (ideally no hidden fees and the published fees are acceptable)
    • They usually aren’t publicly available since prices for high-risk merchants are customised and communicated on an individual basis
  • An understanding of your area of business (ideally experienced in your industry and countries where you operate, familiar with relevant legal requirements)
  • Onboarding and payments software (up-to-date, easy-to-use, customisable, flexible and supporting numerous payment set-ups, e.g. your selected type of payment gateways)
  • Flexibility (ideally negotiable pricing, terms and conditions and features of the payment products and services)
  • Security and compliance (guaranteed secure payments, compliance with payment services regulations, fraud prevention policies and software)
  • Customer support (knowledgeable, responsive and ready to go the extra mile when your business is facing a challenge)

How to select a high-risk merchant account provider:

  • Define your business needs and payments preferred by your customers
  • Make sure your business credit score is acceptable (if needed, find ways to improve it prior to submitting an application)
  • Research and compare merchant account service providers and merchant acquiring banks to ensure they’re likely to meet your business needs
  • Eliminate all the providers that might not be licensed in the region or country you’re working in as compliance is of paramount importance
  • Shortlist only the providers familiar with the area of your business and are most likely to accept your products and services and the level of inherent risks
  • Make sure you’re prepared to meet all the requirements and pay higher fees specified by the selected providers

Requirements for High-Risk Businesses

To open a high-risk merchant account, you first need to look at specific criteria, prepare required documents and fill out a general application usually available on the provider’s website.

Generally, to open a merchant account you will ideally have to demonstrate the following:

  • Good credit score
  • Flawless history of transactions
  • No history of bankruptcy
  • No blacklisted previous merchant accounts
  • Low level of susceptibility to payment fraud

If your business doesn’t meet such criteria, it’s likely it will be categorised as a high-risk merchant.

Your eligibility, including all of the above aspects, will be assessed by looking at the following documents:

  • Incorporation documents or equivalent
  • Shareholders certificate
  • A chart of corporate structure
  • Tax returns documents
  • A business licence (if your business is licensable)
  • A description of products or services the company sells, including marketing materials
  • Billing, shipping and returns policy
  • Proof of registered address
  • Corporate bank account details, including bank statements from the previous few months
  • Your company’s payment processing history
  • Financial statements (3-6 previous months)
  • Proof of identity of the signatory of the account as well as shareholders and directors

How to Open a High-Risk Merchant Account in Europe

To open a high-risk merchant account, you’ll first have to go through the regular merchant account opening process where the level of risk will be assessed and your business will be categorised accordingly. Providers often use AI-powered decision-making tools to assess applications which makes their decisions as fair and as accurate as possible.

You may choose to apply via a high-risk merchant account provider or directly to a merchant acquiring bank. Depending on the complexity of your business, it may take up to a month to open a new high-risk merchant account which is way lengthier compared to low-risk merchant accounts.

The process of opening a high-risk merchant account:

  • Select a merchant account service provider or a merchant acquiring bank that supports high-risk merchants, preferably in your industry
  • Check their requirements carefully as they vary from provider to provider
  • Submit an application for a merchant account along with required documents to a merchant account service provider or directly to or a merchant acquiring bank
    • When applying for a high-risk merchant account, expect to be thoroughly checked and be prepared to provide additional information during the underwriting process
    • When the application is processed, a merchant account service provider categorises the business either as high-risk or low-risk according to their specific criteria
  • If you applied via a merchant account service provider and your application is successful, the provider proceeds to find a bank that will agree to open a high-risk merchant account for you
  • The merchant acquiring bank approves your application
  • You receive a contract for your new account (read it very carefully and negotiate if needed prior to signing it)
  • You’re finally onboarded by the merchant acquiring bank

Conditions for High-Risk Merchants

Once you’ve been granted a high-risk merchant account in Europe, you’ll have to work under particular conditions which usually translate into less flexibility and more accountability.

High-risk merchants are typically required to:

  • Pay higher set-up, processing, chargeback and other fees set by merchant acquiring banks and other payment service providers
  • Sign longer contracts with more terms and conditions
  • Have periodic transaction volume caps (only a certain amount of transactions could be allowed during a certain period of time)
  • Have one of the below cash reserves for a merchant account service provider to verify transactions safely
    • Rolling reserve (when the payment processor sets up to 10% of every completed transaction aside which is sent to the merchant later)
    • Capped reserve (when the payment processor withholds a certain percentage of each completed transaction until the total reaches a pre-established level)
    • Upfront reserve (when the merchant sends a pre-established amount as a reserve to the payment processor to get access to all the completed transactions)
  • More technological requirements to ensure compliance with relevant regulations

Although opening a high-risk merchant account in Europe demands quite a lot of effort due to the inherent risks, our team here at IB-IA GROUP UAB is well-prepared to assist you in the most efficient way. We have eight years of experience in helping clients to open high-risk merchant accounts across Europe. We use our vast network of trusted partners in the European financial services industry to offer the most suitable and cost-effective solutions that improve the functioning of the companies we serve. Reserve a personalised consultation now and start growing your business in Europe.