What exactly is a high-risk merchant account, and what does it mean if your payment processor labels you as a high-risk merchant account?
Businesses that accept credit/debit card transactions utilize a “provider” to process the payments and deposit them into the business’s bank account.
Providers charge the businesses a transaction fee for each process’s payment, the transaction fees often differ!
That’s because payment processors divide businesses into two categories: low-risk merchant accounts and high-risk merchant accounts.
Payment processors identify merchants as either low or high-risk merchant accounts. High-risk merchant accounts are perceived as having greater risks when it comes to chargebacks and fraud, meaning charge higher fees.
How Do Payment Processors Decide What Is a High-Risk Merchant Account?
High-risk merchant accounts usually:
- Have a poor personal credit score
- Sell products and services in high-risk geographic regions
- Have a financial history of chargebacks or fraud
- Have a different business address from where they actually do business are a newer business without an established financial history
- Have poor financial standing
- Sell particularly expensive products and services
- Provide risky or questionable products and services
What Happens If Im Classified as a High-Risk Merchant Account?
High-risk merchant accounts will likely have to:
- Allow your payment processor to temporarily keep a portion of your sales in reserve to protect against fraud
- Sign a long-term contract locking in favorable rates for your payment processor
- Accept that your payment processor can freeze or terminate your account if they detect unusual processing patterns or risky behavior
- Agree to automatic contract renewals or early termination fees
- Pay higher fees per transaction
- Pay higher chargeback fees when a customer requests a chargeback
Conclusion
Payment Facilitators (PayFac) will tend to prefer low-risk merchants. However, being classified as a high risk merchant is far from the end of the world, and there are still many great PayFac for you.
Also Read: Open Banking: The Future of Ecommerce Payments