What are High-Risk Merchant Accounts?

Businesses need online merchant accounts, particularly while face-to-face transactions are diminished during the Covid-19 lockdown. A merchant account provider can provide the software products and services that can make this possible, enabling retailers to accept debit card and credit card transactions on their websites. Generally, these services are secure and provide retailers the opportunity to accept online payments from debit card and credit card cardholders, as well as those who prefer bank to bank ACH transactions.

For several reasons, a business can be considered “high risk” for credit card processing. This means that the payment processor’s underwriting criteria have designated the business as having an elevated risk for chargeback liability. Accordingly, it can be more difficult for these businesses to obtain an online merchant account.

What factors make a business “high-risk”?

Some industries are more likely to have their transactions disputed, and for a payment processor, this is what “risk” means. Payment processors are on the hook for the cost of any chargebacks if they are unable to recover the cost from the merchant, so some processors treat businesses that are high-risk differently, sometimes even declining them as clients if they think the risk is too high.

The main factor that determines whether a business is high-risk is the business’s industry. Businesses in industries including travel, tech support, or pharmaceuticals are generally considered high risk for payment processing. Other factors include the country in which the business is located, the processing volume of the merchant, the prior processing history of the merchant, and the creditworthiness of the business and its principals.

What does this mean for businesses?

Businesses in these industries may have more difficulty getting their online merchant account application approved by a payment processor. To stay in business, retailers need to be approved, even if they’re high risk. If steps cannot be taken to improve the factors for the business that are considered for the risk designation, then the best solution is to obtain the services of a merchant account provider that specializes in getting high-risk businesses approved for a merchant account.

The Takeaway

Numerous factors will affect how high-risk a business is determined to be for credit card processing. Payment processors dictate their relationship with merchants, so high-risk businesses may need to find merchant account providers that offer services to high-risk industries.

To learn more about high-risk payment processing or to sign up for a merchant account, you can visit Charge.com or call (888) 924-2743.

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