What It Is High-Risk Merchant Account And How It Works

As the name suggests, you've been designated as a "high-risk" merchant by your payment processor. Payment processors charge higher transaction fees for high-risk merchant accounts. What does it mean for your business if a merchant account is classified as high risk?

What Is a High-Risk Merchant Account?

A payment processor brands a merchant account high risk if they’ve concluded your business account is at increased risk for chargebacks, fraud, or a high volume of returns. For example, if you're a new merchant with no prior experience processing payments, or if your industry is regarded as high risk due to the possibility of fraud (e.g., controversial products), this could be the case. High-risk merchant accounts pay higher processing costs to account for this risk.

High-Risk Means Higher Fees

Every credit card processing platform is various, but there will be greater costs for high-risk merchant accounts on all of them. Generally, processing rates for all transactions will be greater, often more than twice those of low-risk merchant accounts. Although low-risk merchants are also settling a chargeback fee (a price you pay when a customer challenges the transaction directly with their credit card), high-risk merchants often pay larger chargeback fees.

A merchant with a high level of risk may be required to sign a longer contract, pay an early termination fee, or pay a monthly or annual cost to lock their account active. As an added precaution, payment processors may withhold a portion of your earnings while they investigate whether or not your transactions were fraudulent or susceptible to a chargeback.

For more details visit processingcard.com.

Factors That Indicate a Merchant Is a High-Risk Prospect

There are various reasons a payment processing company may categorize you as high-risk, and although some may seem clear, others are more nuanced. High-risk merchant accounts are defined differently by each provider, but in general, the following characteristics are associated with accounts that are classified as high risk:

High transaction volume. Merchants may be considered high risk if they have a large volume of transactions or have a high moderate transaction fee. If a merchant processes a rate of $20,000 in charges per month or has an average dealing of $500 or more, they may be classed as high-risk.

Accepting payments from all over the world. If a merchant sells to clients globally in countries that are designated as high risk of fraud, they may be labeled high-risk (any country except the U.S., Canada, Japan, Australia or the countries in Europe) (any country except the U.S., Canada, Japan, Australia or the countries in Europe).

A brand-new entrepreneur has entered the market. If a merchant has never taken payments before or just has a modest history of processing transactions, they may be labeled high-risk merely because they don’t have a track record.

High-risk industry. While a merchant may keep a flawless record, they may be designated high-risk because the industry they are working in is regarded to be at a higher risk of fraud, refunds or chargebacks. Subscription-based businesses, for example, are classified as high-risk because many customers sign up for a trial and then fail to cancel their payments after the trial period has ended. It's not uncommon for customers to charge back payments after discovering erroneous charges on their invoices.

Low credit score. If the merchant retains a low credit score, they may be regarded high-risk.

Companies with a High-Risk Profile

Know if your industry is high-risk so that you can plan accordingly in advance. Some of the firms falling into this category include:

Industries for the more mature audience

• Travel, includes airlines, cruises and vacation planners

• Retailers of household goods and electronic equipment

• Gambling Online dating

• E-commerce

• Multilevel Marketing (MLM) (MLM)

• e-cigarettes, CBD, and e-cig stores

• Subscription services and organizations with recurring payment schemes

• Debt recovery

High-Risk Merchant Account vs. Low-Risk Merchant Account

A payment processor will be more willing to work with a business that has one or more of these traits. Low-risk businesses usually have the following characteristics:

Low transaction volume rate (less than $20,000 per month)

• Transactions of less than $500 on average.

• Business in one of the country that is labeled low risk (the U.S., Canada, Japan, Australia and the countries in Europe) (the U.S., Canada, Japan, Australia and the countries in Europe).

• One currency.

• Chargebacks are almost non-existent, and returns are also at a low proportion.

• industries with a low perceived risk.

It's important to remember that when your company grows, your risk profile may shift. For example, if you go through a significant phase of growth, your provider may start considering your firm high-risk. Alternatively, a payment processor may assess a change in risk rating if you work in other countries or industries. If this occurs, your payment processor will either modify your status or may drop you as a client if they do not handle high-risk merchants, at which point you’ll need to find a new supplier to process your payments.