There are different types of merchant accounts like low-risk merchants, medium-risk merchants, and high-risk merchants. Do you know which one are you classified as? How do Payment Service Providers classify which type of merchant account a business need? It is important to know these things. In this article, we will discuss this topic further, what factors affect the categorization of a merchant account, and why businesses are considered as high-risk merchant accounts.
Types of Merchant Accounts
As stated above, there are three types of merchant accounts. They are:
- Low-Risk Merchants
- Medium-Risk Merchants
- High-Risk Merchants
Typically, each merchant type has its characteristics. For example, you will be considered as a low-risk merchant if your business has $20,000 or less monthly sales, or if the average ticket price is $50 or less. There are several factors company will consider when they are determining which kind of merchant are you, some of them are financial stability and company longevity, type of product or service you offer and billing methods you accept. Also, where you conduct business can affect which kind of payment processing you would need. For example, if you conduct business in the low-risk regions like Australia, the US, Canada, Japan, South Korea, Singapore and the European Union, you will most likely be considered as a low-risk merchant account. They will determine which type of merchant you are by looking at these factors.
Why Are You Classified As a High-Risk Merchant?
Now, let’s discuss High-Risk Merchant. There are various reasons why business is considered as a high-risk merchant, here are some of them.
1. Accepting Recurring Payments
First of all, you if you accept recurring payments, they will most likely consider you as a high-risk merchant. If you charge your consumers automatically, or if you offer a 6-month chargeback to your consumers, then you will be regarded as a high risk merchant accounts holder. They will want to ensure that you have a reliable financial strength and previous work history.
2. Offering Cloud-Based Services
Another thing that makes you a high-risk merchant is if you offer a cloud-based service. This is because cloud-based services tend to be risky; the file sharing facility might be vulnerable to hackers. Offering cloud-based services is hazardous, which is why a secure connection and security is needed.
3. Selling Tickets Online
The third one is if you sell tickets online. This kind of business is considered to be risky because the concert might get cancelled and if this happens, your consumers will claim chargeback. This is why it is risky, especially if the venue is outdoors. There might be unexpected circumstances that can cause the concert to be cancelled such as bad weather or accidents.
4. Travel Services
If you are providing travel services, you will be considered as a high-risk merchant because just like selling tickets online, the risks are high. This is because there are too many factors to be considered, and the customer might get disappointed with the trip. The possibility of this happening is relatively high, which is why it is risky. If they are not satisfied with the trip, they might claim chargeback, and you might suffer from the financial loss.
5. Selling Alcohol
Another high-risk business is selling alcohol. This kind of business is risky because alcohol is not legal in every country; it is only legal in certain countries. This means that your customers will be limited, and even if it is legal or permitted, you need to comply with various regulations from all countries, which might make things complicated. The laws which make things a lot more complicated might be troublesome for businesses because it might slow down the businesses.
6. High Average Ticket Amount
As stated above, if you are selling tickets online, you will be considered as a high-risk merchant. If you are selling a high average ticket amount, which means the transactions are done in huge quantities of chargeback, you will be considered as a high-risk merchant. This is because if they are asking for chargeback, you will suffer financial loss.
7. Start-Up Businesses
The last reason you might be considered as a high-risk merchant is if you are a start-up business, especially, if you do not have any credit card processing history. This is because it is riskier because they need business history to trust your business.
So from the points above, we can conclude that the more chargeback or, the more perilous the type of business is, the higher the risk. Thus, you will be considered as a high-risk merchant. However, do not think that having a high-risk merchant account has no benefits. There are some advantages you can get from high risk merchant accounts, which is why sometimes there are merchants who seek out high-risk payment processing.