Avoiding PayPal high-risk status: A guide for subscription businesses

For many subscription businesses, just like for 81% of growing online companies, PayPal isn’t just a payment method—it’s a lifeline. Being flagged as a high-risk merchant account on PayPal is a serious setback for your ability to process online payments, resulting in:

• Sudden daily or monthly transaction caps that throttle your ability to scale;
• Locked-up funds, with PayPal holding a percentage of your revenue for up to 180 days;
• Account restrictions or bans that cut off access to a massive customer base;
• Doubled dispute fees that eat into margins and make every refund more expensive;
• Increased scrutiny and unpredictable freezes with more manual reviews, documentation requests, and sudden restrictions without warning;
• Customer frustration and lost trust due to failed transactions, delayed refunds, and blocked payments that might push subscribers to competitors.

All of that impacts your revenue, cash flow, and scaling efforts, disrupting an entire revenue channel. The only solution is to get ahead of the risk. By reducing disputes, tightening up billing practices, and keeping PayPal’s risk triggers in check, you can protect your revenue—and keep payments running smoothly. Here’s how.

Why PayPal flags merchant accounts as high-risk

A high-risk merchant account is one that payment platforms like PayPal, payment processors, card networks like Visa and MasterCard, or banks have flagged as higher risk business due to one or more of the following reasons:

High chargeback rates and frequent disputes

Excessive chargebacks and disputes are major red flags for PayPal that lead to a high-risk classification. If your chargeback ratio exceeds ~1%, you’re already in the danger zone—just two chargebacks on 100 sales (2%) can push you past safe limits, increasing fees and processing costs. Similarly, a high dispute rate (1.5%+ over three months) signals fraud risks or customer dissatisfaction. 

Similarly, a high dispute rate (1.5%+ over three months) signals fraud risks or customer dissatisfaction. Once you cross this threshold, PayPal may issue warnings and double your dispute fees—for instance, charging $30 instead of $15 per dispute. Keeping chargebacks and disputes low is critical to maintaining a healthy PayPal account.

Check our payment guide for more on PayPal risk thresholds and dispute fees.

Geographic risk factors

Selling in regions known for fraud or operating from high-risk countries can negatively impact your risk profile. PayPal (along with card networks) more heavily scrutinizes transactions from “Tier 3” regions with high fraud risk, e.g., some parts of Africa, Latin America, or Southeast Asia. If a significant share of your transactions comes from these regions, your account may face stricter reviews or limitations.

Sudden spikes in volume or value

Large, unexpected surges in transaction count or order size can trigger PayPal’s risk systems. Whether it’s a Black Friday promotion or a viral product launch, sudden spikes might result in scrutiny, limitations, or held funds. If you’re planning a major sales push, it’s crucial to notify PayPal in advance to avoid disruptions.

Risky business model or industry

Some industries inherently fall under PayPal’s high-risk radar. Gaming, financial services, crypto, and cannabis are just a few high-risk industries that face tighter scrutiny due to higher fraud and regulatory concerns. If you’re operating in one of these high-risk industries, assume you’ll need to take extra precautions to maintain compliance.

Many low-risk subscription businesses also get mixed up in this category, as this business model is more prone to high levels of friendly fraud. 

The implications of being classified as a “high-risk merchant” on PayPal

If PayPal is crucial for your revenue, being labeled a high-risk merchant can be a serious setback for your growth.

Financial consequences

• Increased dispute fees: When your dispute rate exceeds PayPal’s safe limits, your dispute fee doubles. PayPal applies a High Volume Dispute Fee, which can be twice the normal dispute fee, with $30 per dispute instead of $15. Over time, these fees add up and eat into your margins.
• Withheld reserves and delayed payouts: PayPal often holds a percentage of high-risk merchants’ funds as reserves to cover potential losses. These rolling reserves can last between 30 and 90 days, limiting your access to cash flow. Additionally, PayPal might delay payouts (7-21 days per transaction) or impose withdrawal limits, restricting your working capital.
• Payment processing limits and penalties: Once labeled high-risk, PayPal may cap your transaction volume or single transaction amount, affecting your ability to accept payments. In severe cases, if you exceed their thresholds, they could freeze payments or even terminate your account, leaving you unable to process payments at all.

Operational challenges

• More scrutiny from PayPal: The label of a high-risk business means PayPal’s risk team will closely monitor your merchant account. Expect more manual reviews, additional documentation requests, and unexpected account limitations. Any sign of trouble, like a sudden spike in refunds, could result in frozen funds for up to 180 days, choking your cash flow in the meantime. 
• Scaling restrictions: Growth becomes problematic when you’re under PayPal’s risk watch and have volume limits imposed on you. Expanding to new markets, adding new products, or even increasing transaction volumes might trigger further risk reviews. In more severe cases, PayPal can freeze payments or permanently terminate your account, leaving you unable to accept payments at all. If that happens, PayPal may ban you from opening another account, effectively cutting off your access to its payment ecosystem
• Impaired customer trust: While customers won’t see your high-risk status, they will experience its effects. PayPal could block transactions, display warning messages at checkout, or delay fund transfers, leading to failed payments and refund delays. If this happens too often, customers may lose confidence in your service and switch to a competitor with a more reliable payment experience.

How to avoid being classified as a high-risk PayPal merchant

High-risk classification isn’t just a label—it’s a signal that something in your payment flow is broken. Whether it’s unclear billing, preventable disputes, or traffic from risky geos, PayPal’s risk engine reacts to patterns, not intent. The best way to avoid getting flagged? Get ahead of the problem. 

Proactively manage disputes before they become chargebacks

Handle pre-escalation dispute alerts within the first 20 hours. This is crucial: Respond to internal disputes straight after receiving the alert to deflect fraudulent disputes with pre-dispute compelling evidence or issue refunds before it becomes a formal claim. It will prevent official disputes and chargebacks customers from filing an official dispute with PayPal and won’t count against your dispute ratio. 

Since native PayPal pre-dispute alerts are limited in coverage, we’ve developed Solidgate PayPal alerts for our merchants. It’s an industry-first PayPal dispute automation solution that provides merchants with up to 99% PayPal external chargeback alert coverage. 

Solidgate PayPal alerts help reduce external PayPal chargebacks by up to 95% thanks to:

• Full pre-dispute alert coverage across all major card providers

• Real-time monitoring and matching of alerts to orders

• Fully automated alert handling 

• Real-time data to optimize your refund policies and chargeback strategies

The results speak for themselves: our EdTech merchant saved $32,670 on Dispute fees, while the Health&Fitness merchant saw its PayPal chargeback rate drop by 94% in the first month. 

Learn more about Solidgate PayPal alerts.

Optimize subscription billing and customer experience

The recurring nature of payments and trial periods opens up doors to customer misunderstandings and disputes. Without being upfront, clear, and thorough in your pre-sale and post-sale communication, you might find yourself with high levels of friendly fraud. 

Clear terms and opt-in

Ensure subscription terms are crystal clear. Display pricing, billing frequency, description of the service to be purchased, and after-trial charges prominently. Require customers to actively agree to recurring billing—this explicit consent helps prevent disputes. We suggest adding the following disclaimer under the Pay/Accept/Continue/Proceed to checkout button:

If you offer free trials, send reminder emails before they end. Many chargebacks happen simply because customers forget their trial converted into a paid plan. A simple reminder like “Your trial ends in 3 days—billing starts on [date]” can significantly reduce disputes.

Easy cancellation and refunds

Make cancellation simple through a separate cancellation button placed on the website or in the user account in the app. Customers who struggle to cancel are more likely to dispute the charge through PayPal or their bank. A hassle-free refund policy can also help prevent unnecessary disputes. 

Informing users of your Cancellation and Refund Policy and collecting their acceptance before the checkout page is a must. This can be done by:

1. Adding a clickable Click to accept button and disclosing the Cancellation & Refund terms;

2. Including a separate clickable link to the Cancellation and Refund Policies (or Terms & Conditions if the Cancellation Policy is part of it) in the disclaimer of the general payment terms.

Clear transaction receipts

Send a transaction receipt immediately after each purchase, both initial and recurring payments, even if unsuccessful (with the reason specified). The receipt must include your name and location, transaction amount and date, a clear description of the purchased service, card network (Visa/Mastercard), the last four digits of the payment card, and subscription terms (length, auto-renewal, price). It should also provide direct links to your Cancellation and Refund Policy (or Terms & Conditions if applicable) to ensure transparency. 

Learn more in our guide Scheme requirements for subscription merchants.

Diversify your payment processing strategies

Have multiple payment providers in your stack

Don’t put all revenue through one processor. Spread out processing across PayPal and one or two other payment gateways/merchant accounts. This way, if PayPal imposes a limit or hold, your business can still charge customers through other channels. Plus, giving customers more payment options also improves conversion rates.

Add more payment options at your checkout

Offering other popular alternative payment methods first (e.g., credit cards, Google Pay, Apple Pay) and placing PayPal below will encourage customers to use less risky methods. It will naturally reduce PayPal transaction volume and lower risk without affecting sales conversions. As a rule of thumb, aim to keep PayPal transactions below 25% of your total payment volume. Just make sure to balance this approach to maintain conversion rates, as many customers prefer PayPal.

Want to eliminate your PayPal chargebacks? Contact your account manager or book a call with our experts. 

Maintain compliance with PayPal’s policies

Strong KYC & AML practices: Verify customer identities with fraud detection tools, address verification, and CVV checks. Keep your business documentation (licenses, tax info, regulatory certifications) up to date to avoid compliance issues.

Monitor and audit your metrics: Pay attention to your PayPal merchant account health dashboard. If dispute rates rise, take corrective actions before PayPal does.

My account was flagged as high-risk: What do I do?

Being labelled as a high-risk merchant is reversible, but it takes proactive management.

1. Analyze the cause: If PayPal flags your merchant account, investigate the cause. Review chargeback rates, dispute trends, and recent account activity. PayPal typically provides a reason, such as exceeding dispute thresholds or unusual transaction patterns.
2. Appeal and communicate immediately: Contact PayPal’s risk team or your account manager immediately. If the issue was caused by a one-time event (e.g., supplier issues or billing errors), provide documentation and outline the steps taken to prevent recurrence.
3. Implement a remediation plan: PayPal may ask for a formal action plan, especially if you breached the dispute rate threshold​. Outline how you will lower chargebacks, e.g., new fraud tools, better customer support, and policy changes, along with a timeline. Focus on bringing your metrics back in line: if your dispute rate is 2%, aim to get it below 1% in the next quarter. Track progress and keep PayPal in the loop. A sustained period (e.g. 3-6 months) of healthy metrics can convince them to restore normal status and payment processing.
4. Gradually ramp up your volumes: If PayPal imposes limits, stay within them while rebuilding trust and grow carefully. Avoid sudden sales spikes or launching new high-risk products for a while. Show consistency. Essentially, you need to re-establish a track record with PayPal, so treat this period almost like a fresh start to prove your business can operate with low risk.
5. Leverage expert help: Consult with payment risk specialists if needed. At Solidgate, we support our merchants with fraud prevention and PayPal risk management strategies to help businesses stay in good standing.

Staying ahead of PayPal’s risk radar

Managing PayPal risk isn’t about avoiding problems—it’s about staying ahead of them.

To keep PayPal working for your business and not against it, focus on:

• Minimizing disputes and chargebacks – Respond quickly to pre-dispute alerts, optimize refund policies, and communicate pricing transparently.
• Tightening up your subscription billing practices – Send reminders before renewals, make cancellations seamless, and ensure customers explicitly consent to recurring charges.
• Diversifying your payment stack – Relying solely on PayPal is risky. Integrating alternative payment processors ensures uninterrupted cash flow and gives your customers more options to pay.
• Planning ahead for risk events – If you scale quickly, launch in new markets, or see transaction spikes, communicate with PayPal before they react.