What Does It Mean To Be A High-Risk Merchant?

If you’ve been looking into accepting credit card payments, you may have stumbled across the term ‘high-risk merchant’. What does this mean? And what companies are classed as high risk merchants?

Basically, a high risk merchant is any company that is seen as a higher risk to payment processing companies. Certain purchases are more likely to lead to refunds or chargebacks. This can cost payment processing services a lot of money. Therefore, some payment processing services are more reluctant to take on such high risk merchants or charge high processing fees. 

Fortunately, there are high risk merchant processing companies out there that are willing to allow such companies to accept credit card payments without extortionate fees. These could be worth looking into if you are classed as high risk. 

This post delves more into exactly what causes a company to be classed as high risk and which industries are likely to receive this label. 

Common characteristics of high risk merchants

• High chargeback rates: When cardholders dispute a transaction on their credit card or debit card, this is known as a ‘chargeback’. Some companies due to the nature of their industry are more likely to receive chargebacks. 
• Industry reputation: Certain industries may be seen as more unscrupulous, volatile or may simply attract financially irresponsible customers. A higher risk of chargebacks and inability to pay chargeback fees may be assumed because of this. 
• Inconsistent revenue: Companies that have a very inconsistent revenue may be less likely to pay chargeback fees or even cover monthly processing fees. This could lead to a company being seen as more high-risk. 
• Regulatory changes: Industries heavily undergoing regulatory changes could be seen as more likely to engage in illegal practices, which may increase the risk of fraud and chargebacks as a result of attracting equally shady customers. Unfortunately, many honest companies can end up being classed as high risk merchants because of this assumption. 

Industries considered high-risk

There are many industries that are considered high-risk. Some of the most notable examples are listed below:

Travel and ticketing agencies

A high rate of cancellations and refunds can create high chargeback rates, making this industry risky for payment processors. 

Gambling and online casinos

High-stakes bettering and potential for fraud result in many gambling services and online casinos being classed as high risk. 

Adult entertainment

Legal restrictions on certain adult material and unscrupulous practices by some companies can make this a high risk industry that receives a lot of chargebacks. 

Subscription services

Subscription services have high cancellation rates and are a target for friendly fraud.

CBD and cannabis products

Despite growing acceptance, the legal landscape surrounding these products remains complex, and effective fraud prevention for CBD stores is often needed to prevent losses. 

Nutraceuticals and supplements

With the health benefits of many of these products coming under scrutiny, it is common for many refunds and chargebacks to occur within this industry leading to a high risk merchant status. 

Conclusion

Understanding what it means to be a high risk merchant is useful when negotiating payment processing options. There are many specialist services out there that cater to certain industries. Using these payment processing services is recommended to allow you access to accepting credit card payment and reducing processing fees.