What is a High Risk Merchant?

Well-managed businesses often wonder why their company is placed in a high risk processing classification.

Keep in mind that a high risk processing classification is simply a label.  Classification as a high risk merchant has little to do with the specifics of a particular business.  Rather, banks group together types of business based on statistical analysis of industries as a whole.

A high risk processing classification means that the acquiring bank believes chargebacks and fraudulent transactions are more likely for companies in certain categories.

Classifications of High Risk Merchant Account Processing

Here are some general considerations the acquiring banks factor into high risk merchant account processing categories.

• Companies with high-ticket goods or services such as computers, electronics, jewelry, collectibles, travel, etc. are consistently targeted by cybercriminals seeking to exploit payment processing vulnerabilities.  These business types are classified high risk merchant account because the products can quickly be resold and converted to cash or sent out of the country to be sold on the worldwide black markets.
• Companies selling digital content, software, downloads, information, streaming media, music, games, new media, and virtual goods are classified as high risk merchant accounts.  Many digital goods are low ticket items.  Criminals use stolen cards to buy an inexpensive virtual item in order to ascertain whether or not the card is still good.   Merchants with electronic delivery are often targets of “friendly fraud” with buyers claiming products were not received.
• Companies with international customers can be classified as high risk merchants because it is hard to validate the address or identity of foreign shoppers.  Chargebacks are more difficult to investigate and prosecuting fraudulent activity overseas is almost impossible.
• Businesses with fast growth and escalating payment processing volumes can be classified as high risk merchants.   Fast growth make banks cautious because of greater risk of contingent liabilities from chargebacks.
• Merchants in some industries business categories are considered high risk merchant accounts regardless of how well the business is run.  For example, travel companies are commonly classified as high risk  account processing because the purchases are high ticket items with an extended lag time between booking and travel.

Conclusion

Companies in industries classified as high risk processing have a greater than average risk for chargebacks & fraud. If you are in a high risk industry, you will still be considered a high risk merchant even if your chargebacks & fraudulent transactions are low. High risk merchants can still obtain processing account at favorable rates. 

Are you considered a high risk merchant?

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