High Risk Merchants

Major providers of merchant accounts consider some sectors in business as being higher risk and will generally withhold from providing merchant accounts to such enterprises. In the world of payment processing, a business will need to first understand that one merchant provider may consider it to be high risk while another will not share the same opinion.  The classification of a business will be dependent on the merchant’s risk underwriting guidelines. Where the guidelines are strict, approval will be denied. Further, if the merchant provider with whom a business makes an application specializes in services for a high risk merchant, then approval is likely to be made.

A high risk merchant will need to check on the terms of business of the provider before making any application. It should check for charges such as termination fees as well as other incidentals. There should be confirmation if the provider gives a rolling reserve, and if they do, for how long and how much should it be made for. Most high risk providers require a reserve to enable them to cover for any unexpected costs in case a business closes shop, accrues high chargebacks or fraud is committed.

Why a business is considered high risk

A business will be considered as high risk by a provider for a number of reasons. The obvious reason would be if the business operates in an industry that is already considered to be high risk. Other reasons include:

  • If the business is an offshore enterprise
  • If what it sells borders on illegal
  • If it has questionable marketing and sales techniques
  • If the business is in an industry known to have high charge back and fraud incidences

Advantages of high risk merchants

Though the high possibility of risk is a major drawback, there are several benefits that high risk merchants get from their providers and these include:

Global Expansion

There is a possibility of increasing the customer base as merchants explore business beyond borders. The payment processing company is able to accept transactions of card-not-present transactions, make sales to clients from different countries, and allow for multiple currencies processing.

Unlimited potential for earning

Processing of high risk credit cards provides for recurring payments, acceptance of transactions with credit cards that exceed the given amount, increased earnings per month, and the ability to sell any service or product.

Low threat chargebacks

Merchant accounts are usually analyzed to have chargebacks that are lower in comparison to high risk credit card processing. However it may be detrimental because of long term repercussions offered by low risk chargeback.  High risk merchant accounts are rarely terminated because of excessive chargebacks. The fines may be higher but the longer period of business operations assurance will ensure it will not be in danger.

Frequently Asked Questions

What is TMF or Terminated Merchant File? MF or terminated merchant file refers to a list of merchants whose accounts have been terminated for a reason. TMF does not exist but the term is still used commonly in reference to MATCH file.View More

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