It is not uncommon for a high-risk merchant to have many areas they consider to be high-risk. It is also common for an area of business that was considered high risk in the past to now be a lower risk or even mainstream. In this post, we will discuss what factors are used when determining whether a merchant is considered ‘high risk’.
In the past, it was easy to identify high-risk businesses. For example, most payment processors would consider you a high-risk merchant if you were selling adult products or medical supplies.
That’s not the case anymore. With the Internet and globalisation, more merchants than ever can sell online. “High risk” is subjective and varies by country, industry, and year based on political and economic conditions.
How do you define a high-risk business?
● A high-risk business has a high risk of chargebacks, fraud and chargeback fraud.
● The cardholder disputes a credit card transaction with the merchant’s bank. When this happens, payment processors must reimburse merchants to maintain good standing.
● To do so, we must understand what makes some businesses more sensitive to reimbursements.
What types of high-risk merchants are there?
High-risk merchants are a subjective measure. There’s no set definition of what makes up high risk, but it can be applied to businesses or individuals. Some examples of high-risk merchants include:
● New businesses that have less than 12 months of credit history
● Individuals with a long history of bankruptcy or other financial issues
If you want to find high-risk merchants in the most accurate way, you should talk to your processor. They can help you figure out which accounts pose the most risk for your business.
Financial Services / Debt related services
If you’re a financial institution, the following types of merchants are considered high-risk:
● Payday loans (check to cash)
● Mortgage loans and refinancing (check to cash)
● Money orders, wire transfers and money transfers (check to cash)
Let’s take the example of a company that offers consumer loans. The bank will determine the risk of the borrower by taking into consideration factors such as their income, credit history and other financial obligations.
You may be an attractive target for fraudsters if you’re in the travel industry. The travel industry is a big business and attracts a lot of attention from people looking to make some money. Unfortunately, this can also attract criminals who are trying to make money by taking advantage of your products and services.
The following are some things that we’ve found that can increase the risk of fraud:
● Travel packages sold online through third-party websites (like Groupon) can be higher risk because there’s no way for you to verify who is buying them ahead of time or if they exist at all.
Gaming and Gambling
Gaming and gambling are high-risk businesses.
● Because it is such a large industry, with multiple platforms, it is easy for criminals to launder money through it. Criminals launder money in the gaming business by betting with stolen credit or debit cards. They can also use accounts set up in countries with limited regulatory monitoring over online gambling sites (like Malta) and betting sites under fictitious identities to mask their identity and avoid law enforcement while gaming online.
● The gambling business helps terrorists finance their actions, especially online gaming websites where users can buy virtual products with real money, such as gold coins or diamonds.
High risk is a subjective measure.
There’s no one-size-fits-all definition of high risk, but here are some points to consider:
● The merchant’s industry
● The merchant’s business model and the nature of the goods or services they provide
● The merchant’s risk profile and how they manage it
● The merchant’s risk appetite, which can be defined as “how much do you want to take a chance?”
The merchant’s risk tolerance can be defined as “how much risk do you need to maintain your business?”
Industry-specific factors like payment processing, refunds or chargebacks, and other practices Business model factors like international or high-dollar transactions Risk profile factors based on experience and current circumstances.
High risk is a subjective measure. Some merchants may be considered high-risk because they have a poor reputation, while others could have had one incident and now they are considered high-risk. In the past, it was easy to identify high-risk businesses. Nowadays, banks and payment processors use different criteria when evaluating their customers’ risk profiles. This can make it difficult for merchants who want to do business online but don’t want their accounts closed due to an undisclosed reason!