Certain merchants are considered higher risk and this will be considered by payment processors. Where the situation exists, it will be necessary for businesses to find a high risk merchant account provider.
What is a High Risk Merchant Account?
A high risk merchant account is defined as one that is given to businesses where the payment processor considers that there is a greater risk of chargebacks and fraud. This possibility is determined by payment processors based on the nature of a business as well as its location and financial history.
To clarify further, these types of accounts will be where more customers than normal cancel transactions, having refunds and returns, and where there is a greater likelihood someone will engage in fraudulent transactions by using a credit card they are not the owner of.
Types of Businesses Being Classed as High Risk
So, what types of businesses are being classed as high risk merchants? Well, an example would be business consultants. This is mainly because they have a history of high ratios of credit card chargebacks and cancellations within their industry. This is due to many of the transactions processed being either over the telephone or online. In both these cases, the card will not be present at the time of these transactions for the card to be properly verified and customer identification to be carried out in full.
High risk merchants will also process transactions with greater amounts involved which will increase the risk when it comes to fraud. This is because where the amounts involved are higher, there is an increased risk of a customer becoming dissatisfied when they are expecting greater value for money from a product that perhaps does not live up to all its expectations.
Business consultants who are offering seminars to their clients are known to have irregular processing patterns. This happens because sales will show a dramatic increase before seminars are about to happen and can end up with many cancellations when seminars are suddenly cancelled or high numbers of attendees become dissatisfied and request refunds.
How Do Credit Card Processing Companies Cope with High Risk Merchants?
Credit card companies will cope with high risk merchants by giving them special accounts that are geared to businesses that are considered a higher risk in terms of credit card refunds and frauds. It allows for their transactions to be looked out for with a more suspicious eye and to be handled with more effectiveness through closer management.
In conclusion, a high risk merchant will be dealing with customers or clients that are difficult to verify the identity of because they have not been seen in person. This is unavoidable but the reason why high risk merchant accounts will exist so that this is coped with. The greater risk in these instances can come from a high number of refunds being requested at one time or from fraud because identification was not able to take place effectively. The possibility is known, and so can be greater managed by all concerned. There is no doubt that business consultants stand out as someone that will be classed as a high risk merchant. There are others, though, that will be determined by the factors mentioned.
So, hopefully, you now understand what a high risk merchant is and what makes them that way. Then, you can understand yourself as a business why you might be classed the same. It will be something taken into account when you have credit card terminals and process credit card payments to collect the money for the products or services you provide. It is not appropriate in many industries to take payments at the location where the sale takes place, so there will always be a need for payment from a distance. This does make for a riskier transaction but one that a business and credit card processors cope with by having a high risk merchant account.