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What Makes a Merchant Account “Risky”?

A High Risk Merchant Account is often difficult to obtain. Many of our clients are surprised to learn that their business is deemed high risk. There are many reasons why a business may be categorized as high risk. Most of it has to do with a bank’s underwriting guidelines. Each bank has a set of guidelines that are used to determine if a business is high risk or low risk. What may be frustrating to some of our clients is that those guidelines are not even consistent from one bank to the next.  However, most banks to have two consistent guidelines that help in factoring high risk. This is the number of chargebacks your bank believes your business will receive and the possibility of fraud being listed as reason for the chargeback. The more likely a business is expected to have a large volume of chargebacks, the greater the risk, thus labeling your business as “high risk”.

A great example of a surprisingly high risk business would be a travel site that sells exclusive dream vacations to their customers. While travel sites seem innocent enough, they are generally classified as high risk because they are more vulnerable to cancellations due to outside factors, such as weather.

Most banks consider adult entertainment as another high risk business. They are notorious for recieving large amounts of chargebacks. It is not uncommon for customers to use adult entertainment sites and then, ask for a refund, claiming they never visited the sites.

Many other types of businesses, such as gambling, nutraceutical, online dating, and credit repair sites, also are considered high risk due to the likelihood of more than typical numbers of chargebacks.

Though one factor alone likely will not determine whether a business requires a high-risk merchant account, these factors influence the decision:

  • Business Location
  • Business Size
  • Credit History
  • Credit Card Processing History
  • High Chargeback Ratios
  • Type of Industry
  • Whether a Business Exclusively Operates Online

One may wonder why anybody would be interested in starting a business in a high risk industry. The high risk industries are known to often times bring bigger monetary rewards than their safer counterparts.

High-Risk Versus Low-Risk Merchants

Chargeback thresholds are what sets high-risk and low-risk merchants apart. Every processor has a chargeback monitoring program. When a low-risk merchant enters a program, it is given time to fix any problems before they are subjected to excessive fees.

High-risk merchants are considered fee-eligible immediately. Excessive fees are charged each month a high-risk merchant is in a chargeback monitoring program. Typically, chargeback fee rates are greater for high-risk merchants than others.

What Happens When a Business is Classified as High Risk

When a business gets labeled high risk, merchants still can accept credit payments. However, these businesses are subjected to higher processing rates. Additionally, banks can request a reserve on a business’ credit card processing.

Sometimes, high-risks merchants can get banks to reclassify a business. However, it is not easy considering the many factors that led to the classification. A positive credit card processing history of at least six months or a small number of chargebacks and refunds can trigger a reclassification. Banks expect a chargeback rate of less than 1% of a business’ total transactions.

What If I’m a High Risk Business?

Then call SecureGlobalPay today. We specialize in high risk businesses. You can start by filling out our application here: