A high-risk merchant account indicates that your payment processor has identified your organization as being more susceptible to fraud and chargebacks. Merchant accounts that are considered high-risk pay a higher processing fee to compensate for the risk assumed by the payment processor. This article discusses why a merchant account could be classified as high risk, as well as the implications for your business.
What Is a Merchant Account With a High-Risk Profile?
A payment processor will classify a merchant account as high-risk if they feel that your firm is more likely to have chargebacks, fraud, or a significant volume of returns. This could be for a variety of reasons, including the fact that you are a new merchant who has never accepted payments before, or because your industry is considered high risk and prone to fraud (e.g., controversial products). Merchant accounts that are considered high-risk pay a higher processing fee to compensate for this risk.
Increased Risk Equates To Increased Fees With Most Merchant
Each credit card processing platform is unique, however all high-risk merchant accounts will incur higher rates. Processing fees for all transactions will often be higher, sometimes more than twice those for low-risk merchant accounts. While low-risk businesses also pay a chargeback fee (a cost assessed when a client disputes a transaction directly with their credit card company), high-risk merchants often pay a larger chargeback fee.
A high-risk merchant may be required to sign a contract with extended terms, pay an early termination fee, or pay a monthly or annual cost. Additionally, high-risk merchant accounts may be subject to a rolling reserve, in which the payment processor retains a percentage of your revenue until it can confirm your transactions were not fraudulent or subject to chargeback.
There are a variety of reasons why a payment processing platform may flag you as high-risk, and while some are self-evident, others are more subtle. Each provider has its own set of eligibility requirements for high-risk merchant accounts. For additional information, please contact us.
