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What are High Risk Merchant Accounts?

Businesses must obtain a merchant account with an acquiring bank of a financial institution that processes credit card or debit card payments on behalf of a merchant before accepting credit card payments. A merchant account can either be a low risk or a high risk one. Most credit card processors would prefer to handle low risk merchants because it is safer to deal with than high risk merchants which only a few processors are willing to accommodate. A high risk business is something where you expect a high number of chargebacks. Chargeback is actually protection for the customer that is provided by the issuing bank. In other words, when a cardholder file a complaint regarding fraudulent transaction on their statement, the issuing bank makes an investigation into the complaint. When upon investigation it will be proven that the transaction is indeed fraudulent, the bank will refund the original value to the cardholder. So from the merchant’s point of view, if you do not prove the transaction to be legitimate, the bank will take back the entire value of the transaction from your account, along with an addition fee. This chargeback fee will range from zero to a hundred dollars depending on the merchants 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.

Chargebacks are really dependent on several factors including the kind of products or services that the merchant is offering. It could be a superficial factor based on the business industry or clientele while other are related to the merchant’s business practice.

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.

Traditional low risk merchant accounts can quickly be terminated if chargeback levels become excessive. When this happen, the only option left is to secure a high risk merchant account with exorbitant fees.

Whatever type of business you are in, chargebacks affect your business more than the category of your account. So it does not matter so much if you are a low risk or high risk merchant, a fraudulent transaction is the one that is more hurtful to your business.

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