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What are High Risk Merchant Accounts?

Before accepting credit card payments, a business must obtain a merchant account with an acquiring bank, or a financial institution that processes credit card or debit card payments on behalf of a merchant. There are two categories of merchant accounts, low risk and high risk. Many processors choose to do business exclusively with low-risk merchants who are viewed as safe while high risk merchants are provided by only a handful of processors. A business is high risk if it is expected that a high number of chargebacks will occur. This chargeback is a form of customer protection that the issuing bank provides. There are many instances when customer’s credit cards get compromised through fraudulent transactions and this is when a bank investigates a customer’s complaint. The cardholder can get back the money from the bank if the transaction is proven fraudulent. If you cannot, as a merchant, prove that a transaction is legitimate then the whole amount will be taken back from your account with additional fees. The fee for chargeback will range from free to a hundred dollar but this will depend on the merchant bank sponsoring your account. However, if the cardholder complaint is proven untrue no refund is requested from the merchant, though additional processing fee may be charged.

The risk of chargebacks is dependent on several factors and one of them is the product or service that the merchant offers. It could come as a superficial factor based on the business’s industry or clientele, while others are directly related to the merchant’s business practices.

A merchant is low risk if it only accepts one currency and they only sell low risk items like books, office supplies, home goods or clothing. This includes that your chargebacks and returns are kept to a minimum. Casinos, gambling, gaming, VoIP or telemarketing, pharmaceuticals or drug stores, adults products or activities, travel accommodations, attorneys, dating services, magazine subscriptions, and e-cigarettes are just some of the high risk products and services today. And though processors will consider each business on a case-to-case basis, not all of the above industries will be considered high risk by all processors, likewise, many additional businesses that are not listed above could be considered risky.

If there is excessive chargeback levels then low risk merchant account can easily be terminated. Terminated low risk merchants can apply for a high risk merchant account with exorbitant fees.

Chargebacks are never good for a business, whatever category your business might be in. Whether high risk or low risk you should avoid fraudulent transactions which will hurt your business.

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