What is a High Risk Merchant Account Processing?

Well-managed companies often wonder why their business is placed in a high risk merchant account processing category.  After all, the business history is solid, the products being sold are beneficial and customers are satisfied.   Somehow, it does not seem quite fair that the banks classify the company in a high risk merchant account processing category.

High risk merchant account processing classifications indicate that the acquiring bank thinks chargebacks and other contingent liabilities are more likely to occur than with non-high risk merchant account processing.  However, keep in mind that a classification is simply a label.  Companies in high risk merchant account processing categories can certainly obtain accounts with favourable terms and low rates which are similar to non- high risk merchant account processing.

Categories of High Risk Merchant Account Processing
Here are some general considerations the acquiring banks factor into high risk merchant account processing categories.
  • Businesses selling high-ticket goods or services such as computers, electronics, jewelry, collectibles, travel, etc. are consistently targeted by online criminals trolling for payment processing vulnerabilities which can be exploited. These types of businesses are high risk merchant account processing because the products can quickly be resold and converted to cash by organized gangs of criminals.  Or the items can be 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 can be classified as high risk merchant account processing.  Many digital goods are generally low ticket items.  Cybercriminals use stolen cards to buy an inexpensive virtual item in order to ascertain whether or not the card is still good.   In additional, digital merchants with electronic delivery are often targets of “friendly fraud” with consumers claiming products were not received.
  • Companies with international customers and world-wide markets can have a high risk merchant account processing classification.  The reasoning is that it is difficult to validate the address or identity of foreign buyers.  Chargebacks are harder to investigate and prosecuting fraudulent activity overseas is almost impossible.  
  • Companies which have steep growth curves and rapidly escalating payment processing volumes can have a high risk merchant account processing classification.  Fast growth, while good for the company, can make banks cautious because of greater risk of contingent liabilities.
  • Merchants in certain business categories are often considered high risk merchant account processing regardless of how well the business is run.  For example, travel companies are commonly classified as high risk merchant account processing because the purchases are high ticket items with an extended lag time between booking and travel.
 

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