A bank’s underwriting guidelines determine whether a merchant is a high risk. Therefore, each financial institution or processor calculates risk differently. Basically, chargebacks and fraud determine risk. The more likely a business is expected to have a large volume of chargebacks, the greater the risk.
For instance, travel sites are classified as high risk because they are more vulnerable to cancellations due to outside factors, such as weather. Adult entertainment is another industry that accrues numerous chargebacks. It is not unusual for customers to use adult entertainment sites and then, ask for a refund, claiming they never visited the sites. Many other types of businesses, such as gambling, nutraceutical, online dating, and credit repair sites, also are considered high risk due to the likelihood of more than typical numbers of chargebacks.
Though one factor alone likely will not determine whether a business requires a high-risk merchant account, these factors influence the decision:
- Business Location
- Business Size
- Credit History
- Credit Card Processing History
- High Chargeback Ratios
- Type of Industry
- Whether a Business Exclusively Operates Online
Though most merchants only become high-risk accounts after they have racked up excessive chargebacks, some find advantages to these accounts. Increased sales volume allowances, multi-currency options, and recurring billing are benefits to using high-risk payment processing.