WHY A MERCHANT IS CONSIDERED AS HIGH RISK

The institutions conducting the underwriting as well as the card platforms can be “subjective” versus being “objective” in their reasoning for classifying a merchant as a High Risk.  This means that the reasons can be broad and vary immensely from the acquirer to the acquirer. For the sake of this conversation,  I have listed the top five reasons below.

  • You are part of an industry, or vertical, that has unfortunately gained a bad reputation.
  • You have no or extraordinarily little processing history. A start-up for example.
  • You have expensive items, or commonly referred to as “High Ticket” items, along with high monthly processing volumes.
  • When assigned high buy rates, or MDR, accompanied with a mandatory high rolling reserve.
  • You are threatened with account termination.
  • The list is extensive when it comes to what industry, or vertical, is classified as a “High Risk”.  It is ever changing as well as credit card organizations such as Visa, Mastercard, Amex are continually mitigating their risks, and what was once classified as a low or medium risk, can be changed to a “High Risk”.  The most common ones are listed below.
    1. Gaming/Gambling
    2. Forex Trading
    3. Adult
    4. Crypto currency
    5. CBD
    6. Pharmaceuticals
    7. Nutraceuticals
    8. Tech Support
    9. Cannabis
    10. Travel

Why Forex is Considered as High Risk?

Again, for the aforementioned five reasons, but let’s dive a little deeper into specifically why Forex is classified as High Risk.

  • Uncontrollable market risks: Referring to the market volatility what you are trading on.
  • Leverage risk: Traders always leverage risks to obtain maximum returns.  By doing this it can also lead to large losses.
  • Counterparty Risk: The Counterparty is the entity in which you perform trading positions in the Forex Market. In the event that this entity goes bankrupt, no one gets paid out.  This is also affected due to poor regulatory implementation/oversight.
  • Liquidity Risk: Low liquidity usually takes place on the weekends and bank holidays.
  • Online Transactions: Due to the variety in currencies and the potential for fraud as credit cards are the vehicle for the transactions to take place.

Why Gaming is Considered as High Risk 

  • The overall most common online gaming merchant is “Online Casinos”.  However; many more exist such as fantasy sports, poker, and multi-player games.
  • Total turnover:  Online gaming is extremely high and hence the business is considered to be high risk by Merchant service providers and banks.
  • Offshore Business:   There is a high probability for fraud and money laundering.
  • This business includes international transactions and multiple currencies this makes the business a high risk.
  • This Business includes a high percentage of chargebacks, which is the number one driver of a vertical being classified as “High Risk”.   Also, a subscription based business model is common, which can result in a high chargeback’s.

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.

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