High risk merchants are considered those whose businesses pose an increased risk of payment fraud, according to payment processors who will look closely at credit histories and bank statements in order to determine eligibility for such merchant accounts.
Business sectors at an increased risk of chargebacks include online gambling, casinos and adult entertainment as well as credit repair/debt consolidation companies; credit telemarketing firms; nutraceuticals/weight loss products suppliers and travel/ticketing agencies.
Credit Score
High risk merchants are defined as merchants with histories of financial hardship, low credit scores, or bankruptcy in their past. Even though these merchants can still access payment processor accounts with appropriate payment platforms, their fees will likely be higher compared with low risk merchants.
Other factors can also place businesses in the high-risk category, including an extensive history of chargebacks or operating in industries prone to fraud and returns – for instance subscription-based businesses, e-commerce electronics stores (especially those offering “buy online, pick up in store”), adult businesses, travel related services, furniture sales, antiques/collectibles sales or pawn shops can be particularly vulnerable.
Being open with your provider during the underwriting process and maintaining a healthy credit score can increase your chances of instant merchant account approval. Also be sure to clearly communicate your return and refund policies to customers to reduce chargebacks, making your business appear more responsible and decreasing its risk category.
Chargeback Rates
High Risk Merchant Highriskpay.com face lengthy application processes and pay higher fees once onboarded by payment processors, to offset losses associated with increased chargeback rates and help recoup their losses from credit card processors and their sponsoring banks.
Chargebacks occur when customers dispute credit card purchases due to quality issues, clerical errors or fraudulent behavior such as identity theft. Such claims are expensive and time-consuming for credit card processors to manage; as a result, these parties will typically avoid serving businesses that are likely to generate chargebacks.
However, you can win back the trust of the payments ecosystem by maintaining low chargeback ratios over a prolonged period and working with your PSP to have you removed from High Risk status when possible. Once trust has been built up it may also be necessary to change payment processors.
Industry
High risk merchant status can cause lengthy application processes and higher fees, but that doesn’t preclude you from accepting credit card payments – in fact, profit-oriented businesses must do so or risk losing customers to competitors that accept payment cards instead.
High risk industries tend to experience more chargebacks from credit card processors due to customers who regret their purchase decisions or suspect fraud disputing charges, leading to lost revenue for your business and possibly frozen funds and account suspensions as a result of being classified as high-risk merchants.
High-risk merchants face unique difficulties when it comes to return and refund policies, but working with a dependable high-risk merchant services provider can help mitigate these difficulties and increase your odds of being reclassified as low risk in the future. A good provider should offer fraud prevention tools and support and work directly with you to stop fraudulent activity that could cause charges to be disputed or account termination.
Location
High risk merchant accounts provide businesses that have been identified as high-risk by banks or credit card processors with the ability to accept credit and debit card payments with minimal chargeback risk and fraud; typically these accounts come with higher processing markup fees compared with regular merchant accounts.
When selecting a high-risk merchant processor, make sure they have experience working within your industry. Review their contract and inquire as to their process for disputing charges; additionally, understand any applicable fees such as keyed payments (card-not present) or chargeback fees associated with high-risk transactions.
International sales can present additional risks of fraudulent activity and may require extra verification of identity to reduce this risk. Unfortunately, this increases processing fees and may cause legal complications related to compliance issues; choosing a provider with an extensive global network could help lessen this risk.
