DEFINING HIGH RISK MERCHANTS

If you run an online business with a higher risk of chargebacks and want to process credit card transactions, you need a high-risk merchant account. But what is a high-risk merchant account and how do you know you need one?

There are many traits that define a high-risk merchant. The landscape of high-risk e-commerce is ever-changing, ever evolving. With more than 15 years of furnishing e-commerce businesses with high-risk merchant accounts, we like to think we’ve remained up to date with shifts and regulations. When banks label a business high risk, it can mean several things:

• Startup business with little or no credit card processing history
• An industry tarnished by high rates of chargebacks and returns
• The high cost (such as timeshares or airline tickets)
• Subscription-based products or services, such as online dating or magazines
• A merchant who has suffered a terminated merchant account by a bank
• Flawed, imperfect credit, history of bankruptcy
• High volume businesses, such as nutraceuticals
• A country or specific region a merchant is targeting

A high risk merchant account is a certain type of business bank account assigned to those merchants who present a degree of risk associated with their business.

Acquiring banks and payment service providers, perhaps more than ever, are boarding high risk merchants with caution in one form or another:

• Requiring additional KYC documents and tightening underwriting procedures
• Welcoming only certain high risk business types
• Imposing volume caps, security presets on transactions and/or mandatory chargeback prevention schemes

It is the new landscape of high risk merchant accounts: Acquiring banks, credit card issuers and the big name brands have grown leery of the risk some merchants and businesses bring.

HOW IS RISK EVALUATED?

Merchants are evaluated before receiving a merchant account to determine how much risk the business poses to the acquirer. Several variables are taken into consideration. The following are some, but not all, of the characteristics that are considered risky:

• The merchant is registered in the MATCH List database because previous merchant accounts have been terminated.
• The business is new and has very little payment processing history.
• The merchant’s industry is known to have a high rate of chargebacks or is classified with an MCC the card networks have deemed high-risk.
• The merchant sells products or services using a subscription billing model.
• The business sells to international customers in certain high-risk countries.
• The merchant sells custom goods.
• The merchant has a high average ticket amount.
• The sales model includes delayed or future delivery of goods.
• The merchandise the merchant sells poses a reputational risk to the acquirer.

High-risk merchants aren’t eligible for traditional merchant accounts. They must contract with a payment processor that offers high-risk merchant accounts.

There are both pros and cons of payment processing with a high-risk merchant account.

High-risk merchants typically pay more in transaction processing fees and chargeback fees to compensate for the danger they could potentially cause to the payment processor’s bottom line. They are also more likely to have money held in a reserve. However, high-risk merchants are usually allowed a higher chargeback-to-transaction ratio.