How Do I Know My Business Is Low Risk Or High Risk Before Applying For Merchant Account

Florence Carpenter

In 2020, credit cards were the most popular payment method in the United States, followed by debit cards. However, businesses that want to accept electronic payments need to apply for a merchant account. Before applying, it helps to determine whether you are likely to be classified as a high risk or low risk merchant. 

Often, low risk merchants have a low chargeback ratio, relatively low monthly transaction volume, and strong credit history. In contrast, high risk merchants have higher chargeback ratios, operate within specific industries, and have an increased risk of fraud. However, each merchant provider has different criteria to determine which one you are. 

Signs of a Low Risk Merchant

In general, low risk merchants have access to more competitive rates and contracts because payment processors and banks don’t have to deal with as many risky transactions. Some common characteristics and indicators of a low risk business include:

  • Few monthly returns
  • Zero to 1% chargeback ratio
  • Overall monthly volume processing volume of under $20,000
  • Operates in a low risk industry such as household goods and baby products 
  • Operates within the EU, USA, Canada, Australia, and Japan
  • Has an average card transaction of under $500 

Signs of a High Risk Merchant

Depending on your merchant code, industry, and chargeback ratio, you may be categorized as a high risk merchant by your provider and bank. Some typical signs of a high risk business include: 

  • Overall monthly volume processing volume of under $20,000
  • Has a headquarters abroad but sells to customers in the USA
  • 1% or greater chargeback ratio
  • Poor or zero credit history
  • Operates in a high risk industry such as adult pornography, gambling, and e-commerce

Although some payment processors may not be willing to work with you if they consider you a high risk business, there are some reputable options out there that provide additional security for greater peace of mind. 
Read on to learn more about how to choose the best high risk merchant processor for your business at Processing Card today!

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