High-Risk Merchant Account: What It Is and How It Works?

A lot of business owners are not aware of high-risk merchant account until their businesses get identified as such. But why are businesses defined as high-risk merchant accounts?


What is a high-risk merchant account?


A high-risk merchant account is referred to as the payment processing accounts for businesses that are considered high risk to the banks. Since high-risk businesses are more susceptible to chargebacks, they come with the need to pay higher fees for merchant services.


Banks may put a rolling reserve on your account when found with a high potential of chargebacks or with a history showing chargebacks and refunds. Thus, it is the amount of money that will cover possible chargebacks or fraud.


Who is identified as a high-risk merchant?


If the business comes with more chargebacks, the risk is higher. That is because industry reputation and processing history are the main factors that matter. The characteristics of a high-risk merchant are varied based widely on a certain guideline by the payment processor. Here are the overall characteristics of high-risk merchants.


  • The business is selling products and services to countries identified with high levels of fraud
  • The average credit card transactions are higher than $500
  • Having a bad credit history and excessive chargebacks
  • Over $20,000 monthly sales volume


Find your merchant ID number and speak to your bank and ask them if your business is considered high risk.


How to identify a high-risk merchant account?


There are some factors that will make your business more prone to the designation of a high-risk merchant account, which include the following.


  • Working from home – Needless to say, home-based businesses are propositions that are riskier for payment processors as the location of your business matters. In addition, doing business from overseas can also categorize you as a high-risk merchant account.
  • Period of doing business – You will have more available partnerships if you have been in business for a considerable amount of time.
  • Amount of chargebacks – It is advisable to avoid chargebacks whenever possible. Thus, you need to create policies for mediation of customer problems, offering refunds, and communicating with the customers to avoid them.
  • You belong in a high-risk industry – Note that some are riskier than others when it comes to payment processing partnerships.
  • Personal credit – Arguably, this has a lot more impact than what many business owners realize. Thus, you have to improve your credit standing to make you look like a more favorable risk to assume for business partners.


What businesses are identified as high-risk?


The travel industry is just one example of a high-risk business because of the different factors found there that can cause cancellations. As a result, there are many refunds as a lot of customers file for chargebacks. These include forex trading, gambling, and adult-themed websites to mention a few.


Many other industries and business models are prone to chargebacks. Identifying your business’ susceptibility to chargebacks requires you to have a high-risk merchant account in order to accept credit card payments on your site.


Therefore, you have to deal with higher costs of merchant account than just regular merchants if you are a high-risk merchant.

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