What is a High-risk Merchant?

As the number of businesses in the US increases, the competition for customers gets tougher. Keeping customers loyal to your business means keeping them satisfied, and as an entrepreneur, finding cost-effective payment solutions is in your best interest. As it stands, only around19% of customers in the US prefer to use cash for payments. 

Businesses are grouped into high-risk and low-risk classes depending on the type of product or service they provide. Most payment service providers prefer to deal with low-risk companies. 

If your enterprise is rated high risk, it is due to several factors which may make it challenging to find a payment processor platform. But what exactly is a high-risk merchant? And what makes a merchant high-risk? This article will ensure you understand these crucial points and more, so you’ll have the correct information when choosing a payment service provider.

High-risk Merchants and High-risk Merchant Accounts

There are different types of high-risk merchants, but they all have one thing in common – they are prone to chargebacks, fraud, or data breaches, which can negatively affect their reputations.

High-risk merchants need a particular type of monitoring and attention from payment providers – something that PaymentUSA is known for. With years of experience and expertise in handling high-risk merchant accounts, PaymentUSA ensures businesses that are termed high-risk can enjoy extra care and high security for their transaction processing. 

We know that high-risk merchants are enterprises that are exposed to a high number of chargebacks and fraudulent transactions. These types of businesses need an account specially designed for them – a high-risk merchant account. This leads us to the next important question.

What is a High-risk Merchant Account?

A high-risk merchant account consists of a payment processing platform that companies rated high-risk can use for payment purposes. Because of the high number of chargebacks a high-risk business is prone to, many traditional banks generally do not partner with these companies. Hence, it is important to find reputable payment processors like PaymentUSA that offer such products. 

By partnering with PaymentUSA, high-risk merchants gain access to various resources and the support their business needs to grow and stay ahead of the competition.

What Makes a Merchant Account High-risk?

While there isn’t a framework that determines what businesses are high-risk, certain factors play a crucial role in how a company is rated. It’s safe to say many tier-one financial firms and payment processors use the following metrics to determine the businesses that need a high-risk merchant account.

Possibility of chargebacks

The first and most important metric is the percentage of all transactions that lead to a chargeback. Most firms calculate this using the chargeback ratio, the total number of transactions or dollar equivalent. 

Because all businesses can experience a chargeback, a benchmark usually determines what makes a merchant high-risk. For payment processors with expertise in this area, the threshold is higher than those set by banks.

Personal credit score

Another metric is the personal credit score of the business owner. This is important as most companies looking to open an account will not have their own score yet. While many traditional banks will reject an application based on a poor personal score, payment service providers are willing to combine this factor with other metrics. There are terms and conditions attached before the application progresses, though.

Industry of operation

Another crucial deciding factor is the industry in which a business operates. A company can be termed high-risk solely based on the merchant’s category code. There are several reasons why such industries are termed high-risk merchants. 

  • Government regulations and oversight
  • High transaction value
  • Seasonal and weather-dependent businesses 

Some industries that are considered high-risk include:

  • Accounting and tax
  • Adult services
  • Cigarettes, vapes, and tobacco
  • Software as a Service platforms
  • Health and dietary supplements 
  • Electronics
  • Travel and hospitality
  • Firearms and other weapons
  • Credit Repair

High-risk merchants often rely on card-not-present (CNP) transactions. These payment types are more susceptible to chargebacks and fraud.

How Does a High-risk Merchant Account Work?

High-risk merchant accounts differ significantly from regular accounts. With a high-risk merchant account, business owners can offer the same kinds of modern payment methods as low-risk businesses. 

A high-risk merchant account acts as an intermediary between your business account and your customers. Here, funds sit until a settlement is made, including the subtraction of some fees. Once the transaction is complete, the balance is transferred to the business’s checking account. High-risk merchant account services come with solutions and technologies to help prevent fraud and manage chargebacks. 

Because this account type has more additional measures than the usual merchant account, the mode of operation is slightly more complicated than with a regular merchant account.

Finding a High-risk Merchant Account Provider

If your company ranks among those listed, you own a high-risk business. You may not find pricing information about high-risk merchant accounts on providers’ websites. These delicate accounts require applicants to meet with the provider to discuss their business needs. 

When checking out which provider to partner with, here are some questions to get clarification on:

  • What level of experience does the provider have in running a high-risk merchant account in your industry?
  • Is there a reserve requirement? (A reserve requirement forms part of the terms and conditions a payment service provider includes when opening a merchant account).
  • Aside from credit and debit cards, what other forms of payment does the provider support?
  • What are the fees involved?
  • What kind of customer support is available?

Frequently Asked Questions

Here are some common questions asked about high-risk merchants.

What is a high-risk merchant?

A high-risk merchant is a business that is prone to issues of chargebacks, fraud, and data breaches. Most depend on card-not-present (CNP) transaction types.

What is a high-risk merchant account?

High-risk merchant accounts allow entrepreneurs with high-risk businesses to control the level of chargebacks. They also come with special tools to detect and prevent suspicious activities.

Why is a merchant deemed high-risk?

Most high-risk merchants are classified based on several factors. However, no central authority determines who is a high-risk or low-risk merchant. The factors include industry, chargeback history, and personal credit score.

Do You Need a High-risk Payment Gateway?

Strictly speaking, there is no such thing as a “high-risk payment gateway.” Instead, your payment provider’s payment gateway will be adjusted to meet your high-risk demands. 

With a high-risk merchant account from PaymentUSA you enjoy complete protection. We offer:

  • Chargeback protection
  • Worldwide coverage
  • Opportunity to grow your business
  • Increased income and profits

You can speak with our experts to get a fair rating for your business. So if you’re wondering whether your business needs a high-risk merchant account, reach out to our operatives today for a free consultation.

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