Which Type Of Merchant Account Do Online Businesses Need

Let's take a look at merchant accounts for some insight on what you need to know as we've been progressing towards online business models.

Online businesses are booming, whether it be CBD, online retail, dating businesses, vape merchants, health and beauty, and adult content websites.

We have been slowly progressing towards online business models; however, there has been an even more significant surge over the last year.

For example, we are starting to see a significant shift in clothing retail business models to online retail stores. In doing this, this may take your business’ low-risk merchant account up to a high-risk merchant account.

Let’s take a look at merchant accounts to give you some insight into precisely what you need to know.

What Is A Merchant Account?

In simplest terms, a merchant account is an account in which you transfer funds from your customer’s credit card purchases once they are processed.

Merchant accounts are vital for online businesses that are accepting and processing credit/debit card transactions daily.

This should come as no surprise as in today’s day and age; you need to process credit/debit cards.

When it comes time to apply for a merchant account, you will fall under three categories: high-risk, medium risk, and low-risk.

There are some differences between the three, and it’s essential to know which category your online business falls under.

It is important to note that most online merchants are in the high-risk field because transactions are made as card not present (CNP).

Low-Risk Merchant Accounts

Low-risk merchant accounts can be appealing for businesses as they typically will pay far less in fees. With this being said, specific industries will automatically put you at high-risk for a merchant account.

We will get to these factors in the high-risk section later on in this article.

In order to be considered for a low-risk merchant account, your business needs to meet specific requirements.

One of the main things that banks and payment service providers look at is risk. 

Now, risk can vary depending on several factors. Typically, industry type, processing history, and country of incorporation are significant contributors to staying low-risk.

To qualify for a low-risk merchant account, your business will need to meet the following criteria:

  • Your average sale is less than $50
  • Extremely low chargeback ratio
  • You process less than $20,000/month
  • You rarely accept card not present transactions
  • Your business experiences very little fraud
  • Your company is financially stable
  • Your business has good credit
  • Your company has been around for several years/isn’t brand new
  • Most of your sales come from low-risk countries such as the United States, Canada, Australia, Japan, etc
  • 80-85 percent of sales are card present VS card not present

Something worth noting is that businesses with a storefront and an online store can still be considered low-risk. An excellent example of this would be an auto parts store that does under $20,000 in monthly revenue, with 80-85 percent of that coming from the storefront.

Also, businesses with great processing history will have a better chance at applying for a low-risk merchant account.

Businesses That Typically Apply For Low-Risk Merchant Accounts

An online apparel store is an excellent example of a business that could be considered for a low-risk merchant account.

Keep in mind; they will still need to have good credit, have been around for years, and have a monthly revenue of under $20,000, and do 80-85 percent of their sales at their storefront.

Another niche that is common and can be considered low-risk is the pet supply industry. 

A pet supplies storefront that does mostly card-present transactions can likely be approved for a low-risk merchant account, should they fit all of the above criteria.

Let’s take a look at specific industries below that can be considered for a low-risk merchant account:

  • Clothing
  • Pet supplies
  • Books, DVDs
  • Auto parts
  • Moving companies
  • Office supplies
  • Parking garages/stations
  • Home and garden
  • Homegoods

*The above are merely just examples of industries that can be considered for a low-risk merchant account; this is not a complete list.

High-Risk Merchant Accounts

Most online-only businesses will fall into this category. Being considered a high-risk business doesn’t mean that your company is illegitimate; it just means that payment processors and or banks consider your business risky.

One of the main reasons banks and or payment processors will deem online businesses as high-risk is due to the inherent chargeback and fraud risk associated with card not present transactions.

The most common industries for a high-risk merchant account are:

  • adult content
  • online dating
  • CBD
  • cryptocurrency
  • fantasy sports

If online dating surprises you, the industry can be perceived as being “adult” in nature due to some niche dating sites containing an element of overlap with the adult industry.

Adult content is considered high-risk as it often comes with a high number of chargebacks and it also can be damaging to a payment processor/banks reputation due to the taboo aspect of the industry.


Chargebacks can often-times be kryptonite for online businesses. In simplest terms, a chargeback is the reversal of a credit card payment that comes directly from the bank.

Chargebacks are something that merchants will want to avoid as much as they possibly can.

Chargebacks are particularly rampant in the online dating industry. For instance, an individual is married and their spouse sees a charge on their credit card from an online dating website. The individual will sometimes claim they have no idea what it is and file a chargeback with the bank. This is an example of what is known as friendly fraud.

Card Not Present Transactions

Whenever a sale is made, and the credit card/debit card is not physically presented to the merchant, it is classified as a card not present transaction.

These types of transactions often lead to an increase in chargebacks. Subscription services are a great example of a CNP transaction, and they also tend to have a lot of chargebacks.

Reputational Concerns

Certain high-risk industries are considered high-risk from processors as they believe doing business with them could damage their reputation.

Examples of this would be adult content websites, CBD, and gentleman clubs.


Having an understanding of your payments structure is essential when running a business.

If your business operates primarily online and sees most of its transactions online, you will likely be looking for a high-risk merchant account.

Money Journey

Money Journey

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