Charge Card Systems Blog

What Makes a Merchant Account "High-Risk"?

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Each merchant service provider has underwriters that are responsible for determining the risk factor associated with certain types of business and accounts.  When determining whether a business type is unacceptable or restricted, a provider considers criteria such as:

• Chargbacks:  Certain business types are prone to having a high occurrence of chargebacks to sales.  Any business type that has a typical chargeback ration that is 1% or higher, is usually considered high-risk or unacceptable by most credit card processors.
• Credit Card Fraud:  Credit card fraud is more common in certain industries because of the products or services offered.  Any business type that has a higher than normal fraud rate will be considered high risk or unacceptable by many providers.
• Charging too far in advance for services:  Merchants that charge for products or services too far in advance heighten their exposure to excessive chargebacks.  Subscription publications, online memberships, and other similar services are most affected by this guideline.  Typically, a provider will limit the time in advance that a merchant is able to bill their customers to around 4 months.
• Target Market:  Specifically, businesses with an international client base are considered high-risk.  Exporters, international freight forwarders, and shipping businesses can all be considered high-risk merchants due to their international client base.
• Business Operation:  Businesses that use outbound telemarketing, door to door sales, multi-level marketing, and third party order fulfillment are all considered by most providers to be high risk merchants.  This type of businesses operation increases the likelihood of chargebacks for various reasons.
• Type of Merchant:  Card-present merchants are always considered lower risk than card-not-present merchant accounts.  For example, a courier services that utilizes a wireless terminal to swipe cards at a customer's residence may be considered high-risk, when the same business would be prohibited if they were to take credit card numbers over the phone.
• Legality:  Businesses that offer services that are illegal, or are closely related to illegal activities, will be considered high-risk or prohibited by most providers.
• Marketing:  Products or services sold using marketing that exaggerates results are at a high risk for chargebacks.  Customers will ultimately issue chargebacks once they realize that the product or service that they purchased does not deliver the results promised in the marketing.

For a list of typical 'high-risk' business types or more information on credit card processing for high-risk merchant accounts, check out Alternative Merchant Processing at http://www.ampworldwide.com