High Risk Merchant Accounts

High Risk Merchant Accounts

If you’ve spent any time in the world of payment processing, you’ve no doubt heard the term high risk merchant accounts being thrown around. A lot of people use this terminology not fully knowing what it means. Let’s clear that up today!

Deep Dive Into High Risk Merchant Accounts

The layman tends to hear “high risk” and immediately jumps to one of three things:

  1. Marijuana
  2. Guns
  3. Some other illegal product

While those assumptions aren’t 100% wrong, they’re not very correct in assuming the risk of a high risk merchant account is attributed (completely) with the particular product, good, or service, being sold. Let’s say it plainly, on the spectrum of risk, high risk almost always refers to one thing: the amount of risk exposure a merchant account is exposed to due to chargebacks. There are certainly other factors that make a merchant account high risk. Those include, but aren’t limited to:

  • Reputational risk (processors simply not wanting to be associated with a certain merchant type)
  • High average tickets (cost of goods or service)
  • Future delivery (a large gap between the purchase and when the goods or service is delivered – ex: concert tickets)
  • Custom products (like expensive custom furniture or jewelry – expensive, and custom)
  • International, or offshore
  • Bad credit of business owner, or high risk merchant account signer
  • Billing method (trial, recurring billing, etc.)
  • Questionable sales and marketing practices
  • No merchant account history (startup or brand new business)

High Risk Merchant Account and Chargebacks

Ask any fraud/risk analyst or underwriter what is the most important factor in deeming a merchant account high risk and they’ll tell you something along the lines of: chargeback ratio, chargeback count, or chargeback threshold. This is where the truth sits.

It’s all about the chargebacks! Sell a questionable (but legal) product online, have a clean processing history of many years, have little to no chargebacks, and I promise that most processors will see you as low risk compared to some of the other high risk merchant accounts out there.

If you want this to be you, check out how to handle chargeback management and take a look at a company like Midigator to handle this type of thing for you. As the kids say these days, “You do you,” and let somebody else help you prevent and fight chargebacks stemming from your high risk merchant account.

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