A merchant is deemed high risk if it’s more apt to be involved in chargebacks, fraud, or other financial issues. Simply put, what is high risk merchant? It’s a business that poses greater financial risks. To manage these risks, such businesses often require a high risk merchant account. Here are nine signs that you’re a high-risk merchant.
What is High-Risk Merchant?
A high-risk merchant is one that has a greater likelihood of chargebacks, fraud, or other financial risks. These types of merchants typically require a certain kind of merchant account to handle high-risk credit card processing.
What is a High-Risk Merchant Account?
A high-risk merchant account is a certain kind of bank account for companies considered to be at a greater risk for fraud, chargebacks, or other financial issues. Such accounts allow companies to accept high-risk merchant processing of credit and debit cards.
A business is considered higher risk due to its financial history, the nature of the business, the industry in which it participates, or the potential for card-not-present transactions and high-ticket sales.
Compared to regular merchant accounts, high-risk accounts usually carry higher fees and more stringent contract terms. This is because high-risk merchant account providers assume more risk.
9 Signs You’re a High-Risk Merchant?
High-risk companies share certain commonalities that set them apart from standard-risk businesses. Those characteristics include:
- Excessive chargeback rates. Chargebacks are when customers dispute a transaction. A company that often experiences such disputes is usually considered high risk.
- Industry reputation. Some industries, such as gambling and adult entertainment, are seen as high risk due to a rep for frequent refunds or chargebacks.
- International sales. Companies with a lot of global transactions are frequently deemed high risk, particularly if they do business with countries known for high fraud rates.
- Poor credit. A poor credit history can result in a high-risk classification, as financial stability is an important factor in establishing a company’s risk level.
- High-value transactions. Companies that often process high-ticket sales are at heightened risk of fraud and chargebacks. As a result, they are more likely to be deemed high risk.
- Fraud risk. Industries that commonly have high levels of fraud are categorized as high risk.
- Subscription-based services. Companies that use a recurring payment or subscription model are at high risk because such payments are more apt to have chargebacks.
- Unestablished business. New companies lack the established financial history or track record. This lack of proof of profitability and stability are often categorized as high risk.
- Regulatory risks. Industries such as tobacco or firearms are subject to changing legal environments or that are heavily regulated are often deemed high risk. Why? Because of compliance risks and prospects for legal issues.
Common High-Risk Industries
Some industries are commonly considered high risk. Those include:
- Travel and tourism
- Adult entertainment
- Pharmaceutical
- Gambling and casinos
- Tobacco and vaping
- E-commerce
- Cryptocurrency
- Telemarketing and telecommunications
- Financial services
- Legal services
Qualifying for a High-Risk Merchant Account
While good credit is not required, companies being considered for a high-risk merchant account requires a more stringent application process, compared to standard-risk accounts. Here’s what you should do to prepare:
- Know your company’s risk level so that you can address prospective concerns from merchant service providers.
- Pull together documentation. This might mean financial and bank statements, business licenses, a detailed financial plan, and processing history.
- Select a provider. Seek out providers who specialize in high-risk merchant accounts.
- Prove your company is financially stable. Use your balance sheet, bank statements, or proof of consistent revenue.
- Be honest. Be transparent about your financial status, business operations, and history.
Choosing the Right High-Risk Provider for You
Consider the following factors when assessing prospective account providers:
- Industry specialization
- Flexible contract terms
- Transparent fee structure
- Experience and reputation
- Customer support
- Security measures
- Global transactions
- Payment gateway compatibility
- Risk management tools
Before signing the agreement, carefully go over all terms and conditions, particularly looking at contract duration, fees, cancellation terms, and any provisions that could impact your business operations.
In Summary
If your business shares characteristics with other high-risk companies, chances are it is high-risk as well, at least compared to standard-risk companies. If so, and you’re eligible, you may want to consider a high-risk merchant account.
