How to Achieve Maximum Success with Businesses

A Guide to High and Low 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. Many processors choose to do business exclusively with low-risk merchants who are viewed as safe while high risk merchants are provided by only a handful of processors. When we speak of high risk, it means that you expect a higher than average numbers of chargebacks. The issuing bank issues a chargeback in protection of the customer. So, when the card holder files a complaint on fraudulent transactions using their credit card, the bank investigates the complaint. Once the transaction is proven to be indeed fraudulent, the bank will refund the original value to the cardholder. If you cannot, as a merchant, prove that a transaction is legitimate then the whole amount will be taken back from your account with additional fees. The fee for chargeback will range from free to a hundred dollar but this will depend on the merchant bank sponsoring your account. A refund will not be given the cardholder if his complaint is not valid, but the merchant will be charged processing fees.

The risk of chargebacks is dependent on several factors and one of them is the product or service that the merchant offers. It could be a superficial factor based on the business industry or clientele while other are related to the merchant’s business practice.

When a merchant is low risk it is something that only accepts one currency and you are selling low risk items such as books, office supplies, home goods or clothing. Chargebacks and returns are very minimum for low risk merchants. For high risk merchants the products include casinos, gambling, gaming, VoIP or telemarketing, pharmaceuticals or drug stores, adult products or activities, travel accommodations, attorneys, dating services, magazine subscriptions, and e-cigarettes among other things. 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.

If there is excessive chargeback levels then low risk merchant account can easily be terminated. When this happens they can apply for a high risk merchant account but it comes with higher fees.

Chargebacks are never good for a business, whatever category your business might be in. Whether high risk or low risk you should avoid fraudulent transactions which will hurt your business.

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