What are high-risk merchants?

High-risk merchants are prone to higher risk for chargebacks, fraud, or a high volume of returns. Typically, high-risk merchants may be obligated to lock into longer contract terms, an early termination fee, or a monthly or annual fee. High-risk merchant accounts may also be subject to a rolling reserve, where the payment processor holds a certain percent of your income until it can further verify your transactions were not fraudulent or at risk of chargeback.

High-risk merchants pay higher fees. Typically, processing fees for all transactions will be higher, sometimes more than double that of low-risk merchant accounts.

If a payment processor terminates a merchant’s account because of excessive chargebacks, the merchant will typically be added to an industry blacklist called the MATCH list. Merchants on the MATCH list will be classified as high risk for that reason alone. Below is a non-exhausting list of some high-risk merchant activities:

  • Online trading
  • Multi-level marketing
  • Online gaming
  • Adult entertainment
  • Pharmaceuticals and cannabis
  • Tickets and reservations
  • Luxury goods
  • other businesses

Payment processors must assign a Merchant Category Code (MCC) to each merchant or merchant account. The MCC is a four-digit number with which the merchant activities are categorized. Credit card networks have established rules and regulations for high-risk categories for risk monitoring purposes. High-risk MCCs are industries that generate the highest levels of cardholder disputes, represent higher levels of financial risk to the banks, and/or create additional brand risk for regulatory reasons.

The acquiring bank or an authorized Merchant Service Provider (payment processor) must also assign the Merchant ID (MID) to each merchant. The MID is a unique number to identify the merchant in the payment networks. To get a MID, a merchant has to pass a proper KYC check.

High-risk payment processors

Many Merchant Service Providers (MSPs) and payment processors specialize in high-risk merchants. In principle, higher commissions can be earned with them. Many high-risk merchants find it difficult or impossible to access payment services. However, specialized high-risk payment processors help them – not always by legal means – to process payments.

High-risk and illegality

At this point, it must be noted that many high-risk merchants and also high-risk payment processors are operating illegally. The line between high risk and illegality is very blurred. We will bring a detailed report on this shortly.

Stay tuned!