Are You A High Risk Merchant?

Have you been classified as a “high risk” merchant?  This designation can be given to a variety of merchants based on many different factors. It certainly has a bad connotation to be called “high risk” for anything. You probably pride yourself on running a quality business that plays by the rules.

Unfortunately, there are some industries that are just considered high risk and it doesn’t matter how tight you run your business, the credit card issuers such as Mastercard, Visa, American Express and others have deemed your industry to be a high risk industry. No matter how awesome you are at working to prevent fraud, you are still considered high risk due to the nature of your industry. For instance, merchants who engage in selling “adult toys” experience a high amount of chargebacks from people who claim they never ordered the item or patronized a particular store, especially if called out by a spouse on the purchase. One way to combat this type of fraud is to capture IP addresses at the time of the sale.

A high risk category can be assigned to travel agencies who are prone to have people cancel reservations or be impacted by weather related issues and even though you may have advised them the sale is non-refundable, it does not prevent them from attempting the chargeback and that counts against you.

Other things that can cause a merchant to be viewed as a high risk merchant include doing business in an industry that is new and unproven, selling products outside of the United States or having too many previous chargebacks in the past. An owner’s personal credit worthiness can also cause a high risk label to be applied to the account since processing credit cards includes issuing refunds to accounts. If you don’t have the money in the bank to complete a refund transaction, it can cause a serious problem. Handling large volume transactions of $10,000 and above can also cause a merchant to be declared high risk.

If you are declared high risk, you are still able to process credit cards.  You may need to process through a bank who will ask you to maintain a “reserve account” for the first six months to a year to cover refunds or chargebacks.  This will allow you time to prove that you handle transactions properly, issue refunds and credits in a timely manner and you are still in business at the end of the year.  Credit card processing companies such as Chosen Payments may also be willing to process cards for you at a higher processing rate simply because the risk is higher.  In time, you will drop the high risk tag by proving your reliability.