Why Am I Considered a High-Risk Merchant?

A high-risk merchant account means that your payment processor has placed your business at greater risk of chargebacks or fraud. High-risk merchant accounts have more processing charges to compensate for the risk that the processing company is taking on. This article explains how a merchant account can be classified as high-risk and what that can mean for your business.

What is a High-Risk Merchant Account?

A payment processor will label an account with a high-risk rating if they’ve concluded that your account is at a higher risk of chargebacks, fraud, or a large volume of returns. 

There are many reasons why this may be the case, for example, because you’re a new business that has never processed transactions before or your company is considered to be risky and is at a higher risk of being a victim of fraud (e.g., the use of controversial products) for instance. High-risk merchant accounts have higher processing costs to compensate for the risk.

High-Risk Means Higher Fees

Each credit card processing system differs, but high-risk merchant accounts are more expensive across all platforms. The processing costs for every transaction will be more and, sometimes, more than twice those of merchant accounts with low risk. Even though low-risk merchants also pay a chargeback cost (a cost you pay when a customer contests the charge directly through the credit card they use), High-risk merchants typically pay more chargeback fees.

A business with a high risk could be required to sign contracts with more prolonged conditions, an early termination fee, or an annual or monthly fee. High-risk merchant accounts may receive a roll-over reserve, meaning that the processor will hold the appropriate percentage of your income until it can confirm that your transactions are not fraudulent or in danger of chargeback.

How do I get an account with a high-risk merchant?

If you apply for an account with a retailer, you’ll be required to supply documentation for tax and business. Once your application is approved, the payment company will decide if you’re a low-risk or high-risk merchant and modify the plan to suit your needs. Specific payment processors are better suitable for clients with high risk. 

It’s a good idea to investigate different providers and choose the one that meets your company’s needs and know the merchant ID number. When choosing a payment processor, it is best to be required to study the contract thoroughly. Each banking institution and payment processing system differs and comes with different conditions for merchants they classify as high-risk.

Reasons Merchants are considered high-risk

There are numerous reasons why that a payment processing service could label you high-risk although some might seem evident, others are more complicated. Every company has its list of high-risk merchant accounts, but this is the most likely scenario to be considered high-risk.

  • The high volume of transactions: Merchants may be considered high-risk when they have significant commerce volumes or an average transaction rate. If a company processes more than $20,000 worth of monthly transactions or can process an average of at least $500, it might qualify as high risk.
  • They are accepting international payments: Suppose a merchant sells products internationally to countries with a high risk of fraud. In that case, they could be considered high risk (any country that is not in the U.S., Canada, Japan, Australia, or the countries of Europe).
  • The merchant is new: If a merchant has not previously processed transactions or has a bare experience in processing them, they could be considered high-risk because they don’t have any record.
  • High-risk business: While a merchant might have an impeccable track record, they might be classified as high-risk because the field they work in is thought to be more likely to be a victim of fraud, return, or chargebacks. For instance, companies that offer subscriptions are considered high risk because most customers sign up for trial services and then must remember to cancel their payment. They typically take the money back when they review their statements and find missed charges.
  • Credit score low: If the merchant has an inadequate rating on their credit, then they might be considered to be high-risk.

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