What is High Risk Credit Card Processing?
The generic term “high risk” is used by acquiring banks to describe industries or merchants that present a higher risk of financial loss than low or standard risk accounts. There are many reasons banks classify businesses as high risk credit card processing accounts.
The most common reason a business is considered high risk is that type of business statistically has a greater number of chargebacks than standard risk accounts. Or the industry in which the business operates is prone to higher numbers of fraudulent transactions due to products, services, or targeted markets.
The card brands have chargeback ratios that must be maintained by businesses. If the thresholds for chargebacks are exceeded, processors & banks can be fined by the card brands.
Another common reason for a high-risk merchant classification is the billing model used by the company. For instance, recurring & subscription payments represent a higher risk for chargebacks than do one-time sales.
The way in which products & services are sold can also lead to a high risk classification. For instance, ecommerce and MOTO merchants are considered higher risk compared to retail sales. Affiliate marketing, direct sales (MLM), informercials, direct mail, upsells, and other sales methods are considered high risk because these methods of selling have a statistically higher likelihood of chargebacks occurring.
Some acquiring banks will not board businesses in certain industries due to “reputational risk”. As an example, online adult entertainment may not be acceptable to some banks. Even though these same banks often accept high risk credit card processing accounts from merchants in other industries.
Products, services, and delivery times can sometimes result in a business being classified as high risk. For example, high ticket sales and high volume merchant accounts have a greater risk for chargebacks than lower tickets or low volume accounts.
Merchants selling digital merchants are considered higher risk than businesses that ship products. Travel merchants are classified as high risk credit card processing accounts high risk because trips are often booked in far in advance of the actual travel dates.
The markets being targeted by a business can also be classified as high-risk credit card processing accounts. For instance, payments from businesses that target subprime markets are considered high risk due to the higher number of chargebacks associated with the customer demographic.
International merchants are sometimes classified as high risk credit card processing accounts. If the targeted markets of international merchants include countries with escalated fraud rates, a high risk classification will apply.