As a high-risk merchant, you’re probably used to dealing with many issues—from chargebacks and fraud payments to declined transactions.
Unfortunately, the challenges don’t stop there. Operating in high-risk industries also comes with other challenges, such as changing regulations and compliance requirements, especially when setting up your high-risk merchant account.
If you think using big payment providers like PayPal, Venmo, Square, or Stripe’s high-risk merchant accounts is a great way for your business to overcome or avoid those challenges…think again!
PayPal, Stripe, Venmo, and Square are not high-risk friendly, have restricted policies and higher transaction fees, and can suspend accounts and freeze funds without warning.
So, what’s the best alternative for high-risk merchants? A full-service merchant account is an ideal solution, especially if your payment provider is reliable and supports businesses in high-risk industries. Here’s what to know and how to get set up quickly so you can start processing transactions securely.
First…What’s a High-Risk Merchant?
Let’s break it down to the basics if you’re new here.
A high-risk merchant is a business or company that operates in an industry that:
- Is financially risky
- Possesses a high reputational risk
- Is more likely to have legal and compliance issues
High-risk businesses need special high-risk merchant accounts that allow for increased liability banks are willing to take on. While these types of accounts may have higher payment processing fees, they are necessary as a reliable payment solution.
If you’re wondering, “Why is my business classified as high risk?” it’s likely that it operates in a high-risk industry (even if you don’t think you sell or offer anything particularly “risky” or “bad”).
Take a look at some of these examples of industries and why they’re labeled risky:
- Adult entertainment and gambling are perceived to have high reputational risk.
- CBD, cannabis, and online sales of e-cigarettes and vapes are vulnerable to constantly changing regulations.
- Cryptocurrency is considered unstable and financially risky.
Big payment providers or banks also categorize businesses in these industries with high sales and transaction volume as high-risk. This is because such companies are more likely to experience higher chargebacks, risk of fraud, declined transactions, and blocked payments.
💡 Interested in learning more about what’s included in a typical high-risk merchant account? View our complete breakdown of FastoPayments’s high-risk merchant accounts.
Issues of Using Big Payment Providers for High-Risk Businesses
A better phrasing here might be: Why should you expect to pay double the transaction fees?
Because that’s often what happens when getting a merchant account from a platform like PayPal or Stripe as a high-risk merchant (if you even get an account or keep it for very long, that is). It’s also what leads most high-risk merchants to look for PayPal alternatives or Stripe alternatives, but most often too late.
Simply put, big payment providers are not friendly to high-risk businesses and typically avoid working with them. They simply don’t want to deal with the challenges associated with high-risk merchants, such as payment fraud, chargebacks, and blocked payments.
Still tempted to at least try to get an account with a big payment provider just because it seems easier? Read through these issues first.
Higher Processing and Transaction Fees
Transaction fees are higher for merchant accounts labeled as high-risk. At times, they are more than double the rates charged for low-risk merchants. Because of the greater risk, it’s difficult to find a payment processing provider with competitive fees.
Strict or Restricted Policies
Businesses in industries that have high reputational risk, such as adult entertainment and CBD, can also find it difficult to use big payment providers.
Most traditional banks and payment providers are reluctant to support businesses that have difficult regulation requirements.
So, if you start selling a new product or launch your business in a new country that doesn’t adhere to the payment provider’s policies, you could suddenly find yourself with a suspended account or frozen funds.
Speaking of which…
Account Suspension and Frozen Funds
Many big payment providers, like PayPal and Stripe, can close or block merchant accounts that are highly prone to chargebacks and declined transactions—whenever they want without notice.
For example, if your e-commerce company sells e-cigarettes or vapes online, you could be prone to a high rate of chargebacks. If you incur too many, you risk platforms like PayPal shutting your account at any given time.
This is especially worrying and annoying for companies offering recurring billing models, as the payment won’t go through, and your customers will likely have issues accessing their service or receiving their products.
Again, while you could quickly Google a PayPal alternative for high-risk merchants or ask your friend for high-risk alternatives to Stripe, Venmo or Square…at this point, it’s too late, and you’re business is shut down until you’re able to figure everything out.
Merchant Account Lockdown
Yes, you could be locked out of your merchant account, not have access to your funds, and could be levied a hefty fine for violation of policies.
Even if big payment platforms like Venmo accept you as a merchant, it’s your responsibility to adhere to their policies, and oftentimes, it’s difficult for high-risk merchants to do so, as industries change so frequently and there are simply more to consider.
💡 Before partnering with a payment provider, read the fine print. Being aware of their policies and whether they support high-risk industries could help you determine whether they are ideal for your business.
To help you get started, let’s examine four big payment providers: PayPal, Stripe, Venmo, and Square. Below, we’ll explore their restricted policies, find out if they support high-risk businesses, and look at the transaction and processing fees that apply.
PayPal High-Risk Merchant Accounts
First, let’s clear the air to avoid confusion: Having a personal PayPal account does not mean you have a merchant account.
To get a PayPal merchant account, you have to meet their requirements and comply with additional rules. Unfortunately, for most high-risk merchants, PayPal’s Acceptable Use Policy has quite an extensive list of prohibited activities and requires pre-approval for products and services related to certain high-risk businesses to accept payments.
The list of high-risk businesses prohibited by PayPal includes:
- Adult entertainment: PayPal could restrict processing payments for the sales of adult-themed products and services such as video on demand (VOD), and adult DVDs and magazines.
- Gambling: This type of business is permitted only for those customers located in jurisdictions where gambling permitted by law, and if the operator is also located in the same location.
- Cryptocurrency: PayPal restricts payments for any business transacting in cryptocurrencies, non-fungible tokens (NFTs), and in-game currencies.
- Tobacco: Any business selling e-cigarettes and non-cigarette tobacco products is not permitted.
- Marketplaces: It also does not permit e-commerce websites where third-party sellers sell their services and products to customers.
PayPal can block accounts, levy fines, and freeze funds for violations of policies.
PayPal also charges higher processing fees for high-risk businesses, merchant account fees are higher than the average for online transactions, and chargebacks are costly.
For example, here are some of the standard rates that apply for receiving domestic transactions:
| PayPal Checkout | 3.49% + fixed fee |
| QR code Transactions (10.01 USD and above) | 1.90% + fixed fee |
| QR code Transactions (10.00 USD and below) | 2.40% + fixed fee |
| QR code Transactions via third party integrators | 2.29% + 0.09 USD |
| Paying with Venmo | 3.49% + fixed fee |
| To send/receive money for Goods and Services | 2.99% |
| Standard Credit and Debit Card Payments | 2.99% + fixed fee |
| All Other Commercial Transactions | 3.49% + fixed fee |
Stripe High-Risk Merchant Accounts
Similar to PayPal, Stripe has a strict approach and a list of Prohibited and Restricted Businesses specific to different countries and depending on the nature of the business.
For instance, businesses in high-risk industries like gambling and selling cannabis products online are 100% prohibited, despite the fact that they’re legal in some states and countries.
The list of Stripe’s prohibited businesses includes, but is not limited to:
- Adult entertainment: Stripe prohibits content and services for mature audiences which includes literature and media with adult content.
- Gambling: Online sweepstakes, lotteries, sports forecasting, video, and mobile game tournaments, and competitions are also restricted.
- Marijuana: Any business selling cannabis products, cannabis dispensaries, and other related businesses are also not permitted.
There is also a list of prohibited businesses that are jurisdiction-specific and based on the country it’s based and operation in.
For example, businesses selling e-cigarettes with card-not-present transactions are prohibited in Mexico, and the sales of sex toys online are prohibited in the United States, Malaysia, United Arab Emirates, India, and Singapore.
Regarding Stripe’s fees they offer pricing models per-transaction:
| Per-transaction pricing for card and wallet payments | 2.9% + 30¢ per successful card charge + 0.5% for manually entered cards + 1.5% for international cards + 1% for currency conversion |
| For Bank debits and transfers to accept large payments with ACH debit credit, or wire transfers | 0.8% ACH Direct Debit $5.00 cap |
| For post-payment invoices for one-time purchases | 0.4% on transaction total and $2.00 cap per invoice |
| For other payment methods | Starting at 80¢ |
| Payout options | 1% of Instant Payouts volume and 50¢ minimum fee |
💡 Stripe conducts regular assessments of businesses they believe:
- Do not have the necessary information
- Are engaging in illegal activities
- Are selling restricted products or services
If your business gets flagged for any of these reasons, you’ll have to provide documentation in response. If you fail to respond to Stripe with the necessary information, you could face payment processing issues and the risk of account termination.
Venmo High-Risk Merchant Accounts
Venmo (owned by PayPal) started as a peer-to-peer payment network for transactions between two people. While it could work well for low-volume transactions, it’s not suitable for high-volume business transactions in high-risk industries.
Moreover, Venmo can be used only through the app by users in the US, and it doesn’t currently support international transactions. Even though setting up a Venmo business account is free, there are higher transaction fees for business profiles and transaction limits.
Venmo has the same Acceptable Use Policy as PayPal and the User Agreement states that they can restrict the use of accounts or business profiles that violate their terms. So, make sure to understand those terms thoroughly before setting up your business profile.
Venmo’s transaction fees for business profiles include:
| Standard rate for every transaction | 1.9%+$0.10 |
| Tap to Pay contactless payments through iPhone or Android | 2.29%+$0.10 |
| For instant transfer of funds electronically | 1.75% (min. $0.25 / max. $25) |
*Venmo allows the purchase and sale of cryptocurrencies and includes a fee that can vary based on the sale or purchase amount. You can read more about Venmo’s fees here.
Square High-Risk Merchant Accounts
If you’re a low-risk merchant connecting your bank account to your website via Square works quite well. However, like the others on this list, it doesn’t support high-risk businesses such as gambling, sports betting, cryptocurrency, or the sale of CBD products.
The list of prohibited products and activities is extensive and even includes gas stations, bankruptcy attorneys, and infomercial sales. What gives?
As if that weren’t enough, like PayPal, the list of “illegal” activities is unclear, making it confusing to know where you stand as a merchant. You may have a legitimate business selling marijuana products online, which is legal in many states, but still be ineligible to use Square’s payment processing service.
Square has different payment plans and tools based on which transaction and processing fees apply. You can view the processing fees for 2024 below:
Wait, so Strip, PayPal, Venmo, and Square Can Just Close My Account?
Yessssss. That’s why we never recommend high-risk merchants to get accounts through these platforms.
Merchants using PayPal have many stories about how they’ve been blocked or fined heavily ($2,500) for violating their policies. The issue with PayPal’s Acceptable Use Policy is that the terms are vague and open to interpretation. This can allow them to withhold your funds or close your account at their discretion.
If your account is suspended, PayPal can freeze your funds for up to six months. Without a clear appeals process and legal recourse available, you may not have many options to resolve these issues or any way of continuing to do business.
It’s not just Paypal, though!
If Stripe deems your business to be high risk, it can terminate your account without warning and freeze your funds. In some instances, they may give you 30 days’ notice to dispute their action, but this doesn’t guarantee your account will remain open.
Venmo, owned by PayPal, has the same issues. Your account could be temporarily frozen due to failed payments. While there are ways to resolve and recover frozen accounts, the process can be complex and lengthy.
Square can suspend processing your payments for several reasons, from violating their terms of service to having too many chargebacks or “engaging in high-risk business activities.”
So, how do you avoid account suspensions, freezing of funds, and hefty fines? To avoid these issues, the alternative solution is to have a dedicated merchant account with a credible payment solution provider.
FastoPayments—An Alternative Payment Processing Solution for High-Risk Merchants
We know that applying for a merchant account through one of these platforms looks quick and easy. And it may be—at first.
However, to ensure you can do business effectively, access your funds, and process transactions securely, you need to choose a payment provider that offers customized solutions, secure payment processing, and 24/7 support.
A high-risk merchant account provider like FastoPayments can provide a full-service solution and reliable payment gateway to help you reduce processing fees, manage your cash flow, and increase the speed of transactions. Moreover, using FastoPayments’s CMS, you can easily manage all your payments from a single platform.
Ready to see how we cater to high-risk merchants like yourself? Reach out for a free, no-obligation quote. Our payment experts will review your information and get back to you with personalized information as soon as possible.
