The term high-risk merchant account refers to a charge opened by a business that has been classified as riskier than usual. A good example is when you want to open a credit card processing account for your online store but can’t because you have too many chargebacks on your record. It’s common knowledge that businesses with higher chargeback ratios are labeled as high-risk by their payment processors and banks. That said, not all high-risk merchants are the same: some types of businesses are more likely to be considered high-risk than others. As a result, they should expect stricter limits and higher rates when accepting payments through these accounts. You may also check payking review for high-risk credit card processing for merchants in high-risk industries and those with lower levels of risk.
High-Risk Merchant
A High-Risk Merchant Account is said to have a high potential of defaulting on payments. Payment processors consider these businesses risk merchants because they find them sensitive to fraud and chargebacks.
High-risk merchants are considered high risk because they have a high potential of defaulting on payments. Some examples of such businesses include adult entertainment, travel, gambling, and tobacco sales. These are all sensitive industries targeted by scammers who want to steal money from the merchants’ accounts or users who are unsatisfied with their purchase(s).
Businesses listed as high-risk by banks or agencies due to the company’s nature, high chargeback ratio, low credit score, and other factors are considered High-Risk merchants.
- High-risk merchants are businesses that have a high potential of defaulting on payments.
- High-risk merchants are businesses listed as high-risk by banks or agencies due to the nature of the company, high chargeback ratio, low credit score, and other factors. A bank may thus decide not to offer you a merchant account if your business is in any one of these categories:
- Online pharmacies
- Businesses that sell alcohol or tobacco products such as cigarettes, cigars, and beer (either online or offline)
- Businesses that sell adult products like movies and magazines featuring nudity
- Businesses in industries such as gambling/gaming, travel/tourism services, or online betting sites.
Payment processors consider these businesses risk merchants because they find them sensitive to fraud and chargebacks.
If you’re an online retailer, payment processors don’t consider you high-risk.
However, if you are a gambling or entertainment site – or any other business considered sensitive to fraud and chargebacks – you might find yourself on the high-risk list. Payment processors want to avoid working with companies with a higher risk for fraud and chargebacks because it can hurt their businesses.
Several factors can result in your business getting termed as high risk, and here are some of them:
Several factors can result in your business getting termed as high risk, and here are some of them:
- Fraudulent transactions and chargebacks
- Refunds, cancellations, and chargebacks
- The industry you are in is not approved by the payment processor or banks (eCommerce, gambling, etc.)
- High volume sales (this is the reason why many eCommerce companies are considered high-risk merchants)
Fraudulent transactions and chargebacks
Chargebacks are a big problem for high-risk merchants. Chargebacks can occur when the cardholder disputes a charge on their statement, whether they are right or wrong. These disputes happen to everyone, regardless of the risk level. Examples of chargeback reasons include:
- Fraudulent transactions – This could be because you’re selling products that may have been purchased with stolen credit cards (like jewelry) or because your business location is known for fraud (like an adult entertainment club).
- Location – Some areas are more likely to experience fraudulent activity due to their nature and clientele (e.g., Las Vegas strip clubs).
- Industry type – Certain businesses tend to have more fraud than others, such as online gambling sites and digital music stores like iTunes and Spotify.
Refunds, Cancellations, and Chargebacks
There are several ways through which you can avoid chargebacks and refunds. The first and most important thing is to ensure that your customers are happy with the services provided by your business. You should ensure that the customer is aware of the terms and conditions of using your service so that they do not feel cheated while making payments or asking for refunds. Also, ensure that you provide them with good customer support since this will help resolve issues as soon as possible.
Generally speaking, if a customer decides to raise a dispute against you, there are two types of disputes: chargebacks and refunds. Refunds are not considered disputes; instead, they are initiated by the cardholder. They want their money back because they were unsatisfied with what they received from your business while paying through credit cards or debit cards etc. In contrast, on the other hand, chargebacks can be initiated by either side i-e either by the cardholder or merchant (the shopkeeper).
For merchants who run businesses online or offline based on selling goods and services over electronic payment methods like a credit card only if these merchants want these privileges, then it becomes mandatory for them to get a high-risk merchant account, otherwise known as the standard account, which falls under the low-risk category.
The payment processor or banks do not approve the industry you are in.
A high-risk merchant account, also called an “enhanced” or an “e-merchant” account, is a type of credit card processing agreement specifically designed for individuals or businesses deemed high-risk by banks and payment processors. A high-risk merchant account can be obtained anytime, even if you’ve never had issues. It can happen if the banks or payment processors do not approve your industry or if you have had past problems with fraud on your business accounts.
Conclusion
When starting a business, it’s essential to know the type of account that can help you grow. Before opening an account, you must ensure that the payment processor has enough experience in dealing with high-risk merchants because there is no point in applying for an account if they do not approve your application.
