Who Determines Whether We Are A High-Risk Merchant?

Florence Carpenter

When you apply for a merchant account, providers and banks have a specific set of criteria that determine whether you are a low-risk or high-risk business. High-risk merchants tend to be more susceptible to payment scams and chargebacks and may need to pay higher fees as a result.

Since there is no strict list of factors to determine whether you are a high-risk merchant, it’s important to explore several options to find the most cost-effective payment processor for your business. Some providers may be more tolerant to risk and provide more competitive rates than others.

Identifying Signs of a High-Risk Merchant 

To determine whether you might be considered a high-risk business or not, here are some signs you should look for: 

  • Higher chargeback rates: If a chargeback or payment dispute is initiated by the customer, the payment processor will need to be involved in the reversal of the funds. For high-risk merchants that have a higher chargeback rate of 1-2%, this can lead to higher fees. 
  • Overseas location: If a business sells to customers based in the United States but has headquarters abroad, differences in international banking regulations can cause a headache for merchant services. This means that overseas businesses might be labeled as high-risk. 
  • Lack of credit history: A poor personal credit score can also lead to a business being categorized as a high-risk merchant since being paid on time can be a major concern for payment processors. 
  • High-risk industry: Depending on your merchant category code you may be labeled as high risk due to volatility or changing regulations. This can include e-commerce businesses and those in the adult industry. 

If you are labeled as a high-risk merchant by a payment processor, you may still be able to negotiate listed rates to make them more affordable. Many high-risk merchant accounts come with a variety of useful services including payment encryption, multi-currency support, and more. 

Learn more about the average annual fees for high-risk merchant accounts here. 

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